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What is the difference between a Partnership Agreement and a Shareholders Agreement?

What is the difference between a Partnership Agreement and a Shareholders Agreement?

Legally, a Partnership Agreement and a Shareholders Agreement are used for different legal structures. A Partnership Agreement refers to an agreement between partners of a partnership. A Shareholders Agreement refers to an agreement between the shareholders of a company.

The key difference between a partnership and a company is that a company is a separate legal entity. The major implication of this is that partners of a partnership are jointly and severally liable for the debts of a partnership whereas for a company, a shareholder’s liability for the company’s debts is usually limited.

A partnership is an association of persons who have agreed to pursue a business objective for their mutual benefit. It allows people and entities to come together to operate a business and share the profit and loss. A Partnership Agreement sets out information such as business objective, management, funding, responsibilities and obligations of each Partner, and dispute management.

A shareholder is someone who owns a share in a company. In return for its investment, the shareholder receives a range of rights such as the right to vote at shareholder meetings of the company, a right to receive dividends, rights to receive company reports and announcements, etc. All companies must have at least one shareholder.

A shareholder may or may not be involved in the day-to-day running of a company, this depends if the shareholder is also a director of the company who is responsible for managing the company.

There are fundamental differences between a partnership and a company, its legal risks and tax implications. Contact us if you need legal advice on the best structure for your business. Our lawyers can help you draft a legally binding Partnership Agreement or Shareholders Agreement.