Risk of Partnerships- Business Organisation
When two or more parties enter into a partnership, it is important that such a partnership is defined elaborately by a partnership agreement. This is a set of rules and regulations that clearly spell out the manner in which the internal business of the partnership should be handled. Such an agreement is necessary in business as a means of avoiding conflict of interest, defining the duties and responsibilities of the partners, directing how profits and losses are to be shared, and the position of the partners as regards goodwill, among other pertinent issues.
In a partnership, the partners often undertake a common business interest with the motive of making profits. In a partnership, partners are often expected to be fiduciaries to each other. In other words, their relationships should be such that they owe the business and more importantly one another, certain fundamental duties. Such a fiduciary relationship is necessary in every aspect of a partnership business. Accordingly, the partnerships relationship should be one that is high on loyalty, confidence, and trust.
More importantly, the partnership relationship demands that the partners demonstrate the highest levels of standards of good faith to one another and to the business interests. Their actions should be such as to demonstrate that they have the best interests of the other partners at heart in any business transaction that they could be involved in. In addition, partners ought to desist from taking advantage of fellow partners through concealment, threat, misrepresentation, or any type of adverse pressure. Majority of the business relationships have began with a mere shake of hands. Even if a formal business agreement or contract is in place, in the absence of trust among the business partners, such a business entity will likely not achieve the very goals it was formed to attain. On the other hand, without a written agreement, misunderstandings are bound to arise regarding the conduction of business in a partnership. For this reason, many legal experts and business practitioners discourage oral agreements.
Partnership agreements are important in this day and age when businesses are faced by various technical and legal issues, some of which are internal matters implicating even the directors. However, a good number of businesses, some of which are multinationals, operate on the basis of oral partnership. In an oral partnership, the agreement is not in writing but rather, is reliant on the actions of the individual partners. Regardless of whether a legal and formally written contract exists in a given business establishment, the most important issue that needs to be considered in a partnership is trust.
The formation of oral partnerships is also dependent on the existing partnership law in a given jurisdiction. For example, in Delaware, the oral partnership law there makes no distinctions of how complexity the agreement involved is, and neither does it give preference to the value of the partnership in dollar amount. Accordingly, the formation of an oral partnership could still happen even in a case whereby the partnership in question is valued at billions of dollars, and the terms involved are also very complex. More importantly, the ability of the negotiator in an oral agreement is vital. This is because in such an agreement, the negotiator would likely infer that because such a partnership would obviously involve the exchange of proposals and documents, this is a clear sign that the negotiation entails offers and counteroffers. Therefore, an oral partnership would suffice.