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Article by listed attorney: Fawzia Khan

Many people use the start of the New Year to focus on ways to increase their income or perhaps to grow and expand an existing business. Joining forces in partnership with someone else or combining one’s resources with like-minded people in a joint venture can be a natural stepping stone to creating greater income for yourself. A partnership is an association between two up to twenty people, each of whom agrees to contribute something into the partnership, be it capital, skills, goods or services, in order to conduct an income generating business and share in the profits of the business.

In South Africa, a partnership is not regarded as a legal entity. Unlike trusts, companies and close corporations, which are considered ‘legal or juristic persons’, a partnership is not, and there are no formalities required in order to set up a partnership. A trust must be registered with the Master of the High Court and a company must be registered with the Registrar of Companies in Pretoria. There is no such registration required for a partnership. There is also no legislation compelling an audit for a partnership. The partners would all co- own whatever assets exist in the partnership. It may thus seem as the perfect vehicle to use if one only considers the low set up costs associated with partnerships, but there are also huge risks involved.

For one thing all the partners are jointly responsible for the debts of the partnership. If one of the partner’s estates were sequestrated, it would have a direct bearing on the rest of the partners whose estates would also become sequestrated. Should the partners decide to dissolve the partnership, all assets in the name of the partnership would have to be sold and all creditors paid. In the event that there is a shortfall on any payment due to a creditor, the partners would have to personally settle the shortfall due to the creditors. A partnership agreement setting out the specific terms of the agreement reached amongst the partners is a vital document and the blueprint for the manner in which the partnership will be run. It is therefore crucial that a professional person such as an attorney drafts the agreement. This would ensure that proper safeguards and measures are taken into account, which deal with various issues or problems which may arise later, including the dissolution of the partnership.

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