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Which clauses should be included in a partnership agreement?

It is highly recommended to consult a legal expert to draw up a written partnership agreement.

Entrepreneur

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A partnership agreement should deal with the following issues: Formation, profit sharing arrangements, salaries, banking arrangements, changes of partners, liquidation and responsibilities of partners.

While there is nothing stopping you from preparing your own partnership agreement, we recommend you have a legal expert table the contract.

Important Points to Consider

The obvious information

  • Name of the partnership
  • Purpose of the partnership
  • Duration of the partnership

Responsibilities, performance and remuneration

  • Explain in detail each partner’s role.
  • What will be the income of each partner?
  • Detail how profits or losses will be distributed
  • Define each partner’s responsibilities and describe the level of performance that is required from them.
  • State clearly if partners are expected to make a full-time commitment to the venture, or whether other business activities will also be allowed.

Investment in the business

  • If a partner loans money to the business, how will the partner be repaid?
  • What will each partner be contributing in terms of cash, assets, loans, investments and labour?

Withdrawal and admission of partners

  • Provide guidelines that must be followed if one partner wants to leave the partnership.
  • List grounds for a partner to be expelled from the partnership.
  • Explain how new partners be admitted to the partnership.
  • Can a partner sell their interests in the business to an outsider?

Financial

  • Which partners will have check signing privileges?
  • Who will be authorised to draw on the partnership’s accounts?
  • How will the books be kept?

Valuation

  • What methods will be used to determine the value of the business in the event of a sale, dissolution, death, disability or withdrawal of a partner?

Buy-out clause

  • What guidelines should be followed if one partner wants to retire, dies or leaves the partnership?
  • Decide if partners who leave have to sign a non-compete agreement.

What is a non-compete clause?

The use of such clauses is premised on the possibility that if a partner is expelled or leaves to start another business, he or she could potentially gain competitive advantage by abusing  private information, trade secrets or customer/client lists, business practices, upcoming products, and copying marketing plans. The non-compete clause prevents this from happening.

What methods will be used to settle disputes?

Decide at the outset and include in the partnership agreement what methods must be disputes can’t be resolved. Methods include negotiation, mediation and arbitration.

  • Negotiation – Negotiate directly with the other person. You may hire an attorney to negotiate directly with the other side on your behalf. There are no specific procedures to follow.
  • Mediation – A voluntary process in which an impartial person (the mediator) helps with communication and promotes reconciliation between the parties that will allow them to reach a mutually acceptable agreement.
  • Arbitration – Typically an out-of-court method for resolving a dispute. The arbitrator controls the process, will listen to both sides and make a decision. Like a trial, only one side will prevail. Unlike a trial, appeal rights are limited.
  • Legal route and court – only as a last resort if all other methods fail.

Register with SARS

All partners are required to include their full income from the partnership in their personal tax returns (IT 12) available from the Receiver of Revenue (this only carries the cost of postage – some banks offer assistance with the completion of this form free of charge as a customer service).

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Starting a Business

What are the do’s and don’ts of securing an online domain name?

We asked Domains.co.za founder, Wayne Diamond, what the do’s and don’ts are when it comes to entrepreneurs registering domain names for their start-ups…

Wayne Diamond

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There’s that L-word again:

“Location, location, location”. It’s the make or break decision. Every estate agent and business owner cannot overemphasise the importance of this Critical Business Decision Number 2 (Number 1, of course, has to do with what you’re going to sell!).

Related: As a start-up, what are the most important areas I should be looking at?

 

Whatever business you’re in, being close to customers and convenient to business partners and suppliers is essential. That bricks-and-mortar wisdom is equally true in the world of online commerce. Having the right domain name and the right support for your online presence has emerged as a real driver of success.

Some figures put the scale of the opportunity into perspective: US e-commerce is predicted to reach $440 billion by 2017, showing a compound annual growth of 13.8%[1]. While the Internet economy is in its infancy in South Africa and Africa, it is growing strongly: research by World Wide Worx showed that consumers, small and medium businesses and government were already purchasing products and services worth R59 billion on the web three years ago.[2]

So how to secure the best and most profitable Internet real estate to make sure your business can ride the e-commerce wave?

It’s all in the name:

The first decision is what domain to use. One of the exciting developments is the launch of new Internet domain names, so it’s definitely no longer a choice of .com or .co.za. The proposed dotAfrica (.africa) geoTLD (geographic Top Level Domain) is one option that’s set to come online around the first quarter of next year, but what about the ZAdotCities domains of .joburg, .capetown or .durban? Domain names within these additional geoTLDs will be able to be snapped up by the public around November this year.

While .com remains a good choice for truly international businesses, choosing a domain name with some local flavour is probably going to work well for many companies.

The greater range of domain names also makes it more possible that you will be able to choose the right name for your business. When it comes to the more established domains, like .com or .co.za, chances are higher that the name you want has already been taken.

When it comes to that all-important name, received wisdom used to be that short was best, but the trend nowadays seems to have reversed—even phrases are now used. The key is to choose a name that is easily recognisable, that will stick in peoples’ minds and that describes the business well.

Perhaps a good example is the domain used by the writer of this article: www.domains.co.za is both a brand name and a name that perfectly describes the nature of the business. At just seven characters in length, “domains” is also an easy to spell, easy to remember word – keeping names under ten characters is guaranteed to help audience recall.

Something people will remember easily is absolutely vital.

Some companies use specific names for individual campaigns, but always make sure the business as a whole has its own web address.

Experience has shown that it’s probably worthwhile to register similar domain names to the one you choose, just to keep competitors from taking them in an effort to sow confusion.

My final advice: it’s always a good idea to use an ISPA (Internet Service Providers’ Association of SA) member to help you register the chosen address of your start-up. That way you’ll be sure that all the formalities are correct, and that the company you’re dealing with abides by ISPA’s code of conduct.

Finally, as there are already almost 950 000 .co.za domains registered, it’s a good idea to surf to www.domains.co.za and perform searches to see if the domain you would like is indeed available.

Related: Does the South African government award grants to franchisees?


[1] Chuck Jones, “Ecommerce is growing nicely while mcommerce is on a tear”, Forbes, 2 October 2013, available at http://mashable.com/2013/02/05/ecommerce-sales-top-1-trillion-worldwide/.

[2] “Internet 2% of SA economy”, 29 May 2012, available at http://www.worldwideworx.com/internet-2-of-sa-economy/.

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Starting a Business

How to protect your business idea when sending them to financial instituitons?

Signing an NDA, is it necessary?

Anton Ressel

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How can I protect my business idea before I submit my business plan to financial institutions and other agencies for help?

You have a few options:

Firstly, you can include a disclaimer as an introductory clause, saying that any and all information contained in the business plan and related documents remain the Intellectual Property of xxx (your name) and may not be reproduced, copied or used in any manner without express written consent. This is not legally binding, but usually enough.

Secondly, you could ask them to sign a non-disclosure agreement, which is more binding from a legal perspective. The downside of this is that it can come across as arrogant, especially from someone who is approaching us for help. Personally I refuse to sign any NDA from clients who approach me for help, it just smacks of mistrust and arrogance.

On a final note, good ideas always get copied. If you are that worried that your idea will be stolen, you may need to re-look at it and find ways to make it difficult to replicate, or better yet, make sure you are first to market.

Related: As a start-up, what are the most important areas I should be looking at?

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Starting a Business

Does the South African government award grants to franchisees?

In my experience, unless you as the entrepreneur have some ‘skin in the game’ and a reason to get up and make the business work every morning, it seldom will.

Anton Ressel

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I am considering purchasing a children’s education franchise and wanted to know if the government offers grants. The cost of the franchise is R 86 000. If so what are the criteria to qualify and how does one go about it?

Accessing grant funding for a franchise may prove challenging, unless that franchise is registered and accredited, in which case there is a fund that may consider it – see CNBC for more info.

Otherwise, you could look at www.investmentincentives.co.za and see if any of those sources of financing are of interest. It naturally depends on your own PDI (previously disadvantaged individual) status as many of these funds are focused on youth, women and PDI’s.

Finally, on an emotional level I would caution against going all out for grant funding and not loan finance. In my experience, unless you as the entrepreneur have some ‘skin in the game’ and a reason to get up and make the business work every morning, it seldom will.

 

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