Are partnership agreements for spouses a requirement?

Are partnership agreements for spouses a requirement?

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In life, I believe in taking a proactive approach and being prepared rather than being reactive. Obviously things don’t always work out, but by being prepared one can eliminate a lot of unnecessary stress.

1. Is it necessary to have a formal partnership agreement with my wife?

Definitely! There is no situation that I can think of where one should not have an agreement. The reason for this is your company is a legal entity in its own right and as such needs to be managed accordingly.

Just like a marriage, a business has its own agreement, and, if the worst had to happen and you got divorced, your business would not be covered or protected. And this could potentially mean that the livelihood of your staff could also be affected.

2. What sort of contingencies should we cover in the agreement?

There are a few things to consider including capital contribution, how to distribute profit and or loss, salaries and operations.

In addition the terms of partnership and or what would happen if one party wanted to withdraw from the partnership (or if one party died). Finally a non-compete agreement (whereby either party can’t go off and start a similar business in direct competition) is also essential.

Should both spouses be equal partners in a business?

I think that this is a personal choice. However there are some important considerations such as BEE and tax structures; who is liable for what as a business partner; and depending on your business structure, who signs surety and how this would affect one’s personal assets.

 

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How do we decide who will be responsible for what?

In my experience the person who is most experienced and has the most passion for any particular role should be given the job. This way you ensure maximum productivity. For the areas where there is a gap and neither of you can fulfill the role, employ people to help you even if it is just on a short-term basis.

My wife and I are getting divorced. How do we keep the impact on our business to a minimum?

Without any contracts in place besides your marriage agreement, this will be hard unless you can come to an amicable agreement. If you can come to some sort of arrangement I would strongly suggest getting a partnership agreement drawn up at this point in time. If your business is profitable it would make sense that both partners continue to benefit in the short term, until either partner can buy the other out.

My wife and I own a business together, how can we protect the other should one of us pass away?

The best way to do this is through an insurance policy that gets taken out by the company to protect both partners in such an event. This protects both parties in that the other can get paid out, and therefore becomes the sole owner, without risk of outside parties, and as such the business, its vision and values remain intact.

Darren Ryder
Darren Ryder is a business mentor at The Hope Factory, specialising in helping SMMEs establish and grow their businesses. He is passionate about South Africa and believes entrepreneurs will play a big role in our future economic development. Historically he has started and run his own business, having come out of full time ministry and 16 years in the manufacturing and textile industry, with a sales and analytical background.