Difference between Partnership Agreement and Shareholder Agreement

When it comes to business, one of the most important steps is to formalize the relationships between the parties involved. This is done through the use of agreements which document the terms and conditions of the business relationship. Two of the most common types of agreements used by businesses are the partnership agreement and the shareholder agreement. Although they may seem similar, there are key differences between the two.

Structure of the Business

One of the main differences between a partnership agreement and a shareholder agreement is the structure of the business. A partnership is a business that is owned and managed by two or more people, while a corporation is owned by shareholders who elect a board of directors to manage the corporation on their behalf.

Liability of the Parties

Another difference between a partnership agreement and a shareholder agreement is the liability of the parties involved. In a partnership, each partner is personally liable for the debts and obligations of the partnership. In a corporation, shareholders are generally not personally liable for the debts and obligations of the corporation, except in specific circumstances.

Rights and Obligations

Partnership agreements and shareholder agreements also differ in terms of the rights and obligations of the parties involved. In a partnership, each partner has an equal say in the decision-making process. In a corporation, shareholders vote based on the number of shares they own. Shareholders also have the right to elect the board of directors and to receive dividends.

Termination of the Agreement

Finally, partnership agreements and shareholder agreements differ in terms of how they can be terminated. A partnership can be dissolved by mutual agreement of the partners, by the death or withdrawal of one or more partners, or by court order. A shareholder agreement can be terminated by mutual agreement of the shareholders, by court order, or by the sale of all of the shares in the corporation.

In Conclusion

In conclusion, a partnership agreement and a shareholder agreement are two different types of agreements used in business. They differ in terms of the structure of the business, the liability of the parties involved, their rights and obligations, and how they can be terminated. It is important for businesses to understand the differences between these two agreements and choose the one that best suits their needs.