Partnership agreement

Partnership agreement

Partnership (corporate) agreement IS an agreement between the parties on the organization of their future relationship in any field of activity regarding their rights and obligations. Such consent testifies to the partnership and establishes its rules – thus, in the understanding of the law, such an agreement is not a preliminary contract. Under the new law, a corporate agreement is free of charge and must be in writing. The law explicitly states that a contract that does not meet these requirements is void.

In 2018, the norms of the Law of Ukraine “On Limited and Additional Liability Companies” No. 2275 came into force. It was this Law that for the first time in Ukrainian legislation fixed the concept of a corporate agreement and general requirements for its content and form.

Such an agreement can be drawn up by individuals, private entrepreneurs, legal entities. The persons who have drawn up such an agreement are indicated in its text and, as a rule, are called partners.

The partnership agreement is drawn up in writing. The contract is considered valid from the moment of its signing by the parties.

Changes to the contract are made by the parties’ agreement, that is, by drawing up an additional agreement. Also, the parties may provide for the possibility of unilateral refusal to fulfill the contract, as well as its termination.  

Why draw up a partnership agreement

Drawing up a corporate agreement between business partners has many advantages. Thus, a corporate agreement is a mechanism that operates in addition to the constituent documents (articles of association, memorandum of association) and at the same time provides the company participants with a greater level of protection of their rights than can be indicated in the constituent documents.

The conclusion of a corporate agreement protects the financial and economic interests of the participants, adds stability to their activities and minimizes the negative impact of the personal conditions of some participants on the position of others. At the same time, in order to avoid such situations, the corporate agreement may contain special conditions for the sale of its share to the majority shareholder, including approval by the participants of the acquisition or alienation of shares.

The conclusion of a corporate agreement is a relatively “inexpensive” way to minimize any potential risks of management disputes and lengthy litigation. At the same time, the corporate agreement itself may contain provisions on the procedure for resolving disputes between the parties.

The corporate agreement is subject to change or addition with the consent of all parties to the agreement, in contrast to the articles of association, which can be changed by a “majority” of votes. In this case, the participants’ interests are more protected from involuntary interference.

Also, the new Law specifically states that other agreements concluded by a party to a corporate agreement in violation of such a corporate agreement are void. The presence of such a norm gives the corporate agreement a special status and provides a potentially high level of judicial protection in the event of a dispute between the company participants.

Rules for drawing up a partnership agreement

A partnership agreement is a document that allows you to initially establish the scope of rights and obligations necessary for successful cooperation, as well as avoid possible conflicts in the future. Therefore, it does not and cannot have unnecessary details.

Therefore, when drawing up such an agreement, pre-discuss the following points:

  • a detailed description of the procedure for changing the size (decrease and increase) of the authorized capital of the company;
  • deep specification of the rights of a company participant;
  • the procedure for foreclosing the share of a company participant;
  • description of the procedure for the transfer of shares to the heir or successor of a company participant;
  • acquisition by the company of a share in its own authorized capital;
  • a clear description of the procedure for convening a general meeting of the company participants (to prepare for the rejection of state registrars on “new” grounds);
  • the procedure for absentee voting;
  • features of decision-making by poll and holding general meetings of participants by a company with single participant;
  • features of holding a general meeting of the company participants outside the territory of Ukraine and much more.

At the same time, according to the Law of Ukraine “On Limited and Additional Liability Companies” No. 2275, the content of a corporate agreement is not subject to disclosure and is confidential, unless otherwise provided by law or the agreement. A corporate agreement to which the state, territorial community, state or municipal enterprise or legal entity is a party, in the authorized capital of which 25 percent or more directly or indirectly belongs to the state or territorial community, is subject to publication within 10 days from the date of its conclusion by posting on the website of public authority, local government.

Therefore, a corporate agreement creates for its participants a wide field for discussion and discretion, while protecting the interests of each of the parties, by preliminary agreeing and fixing the features of business management.

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