A partnership restructuring agreement is an agreement which enables the parties to modify or alter their existing partnership contract. Typically, terms such as profit-sharing, capital contribution, obligations, adding of partners, etc. are subject of such an agreement. Negotiations form the basis of such an agreement but are considered better than entering into an entirely new contract.
What is a Partnership Restructuring Agreement
A partnership restructuring agreement is a contract which is entered into for the purpose of amending or modifying an existing agreement. Such a contract either alters the existing partnership terms or adds new business partnership terms to the agreement. It may also add new partners to the partnership. Before setting out to draft such an agreement, one should have the following information at hand: names of the parties (existing and new), the modified terms, any changed timeline or duration, the date from which such changes would be implemented. It is essential to reference the original agreement in this contract. Negotiations typically occur for such agreements, however, it is better than re-negotiating all the terms and hence, is preferred over signing an entirely new contract.
Purpose of a Partnership Restructuring Agreement
The purpose behind such an agreement is to restructure partnership terms by way of a written and properly executed agreement. It helps to easily modify the terms and conditions provided for in the original agreement. It also helps in adding new partners.
Inclusion in a Partnership Restructuring Agreement
The key inclusions in a restructuring agreement are: partnership terms such as profit sharing, duration, change in capital contributed, etc. Apart from the above, the name of the parties, effective date, remedies, notices, dispute resolution, waiver, severability, and other such standard clauses should also be present. Statements making references to the original agreement, statements confirming that other terms have remained unchanged, should be also included.
Key Terms of a Partnership Restructuring Agreement
The following key business partnership terms should be added in a restructuring agreement:
- Effective Date: This term becomes important in the context of this contract as it is an amendment agreement and hence, the date from which the enumerated changes will become operational, needs to be included.
- Duration: There may be graded changes in the agreement. For example, if one of the business partnership terms state that capital contribution structure would change. The understanding that this is for a certain period of time or is open-ended needs to be captured.
- Changed terms and conditions: Terms such as profit-sharing, capital contribution, modification of an active partner to sleeping partner, changes in the business of the partnership, any change in responsibilities and obligations, etc. need to be captured.
- Names of new parties to be added, classification into active/sleeping partners.
- Consent: A statement to this effect that changes are based on mutual consent should preferably be included.
Drafting a Partnership Restructuring Agreement
The following guidelines need to be followed in order to effectively draft a restructuring agreement:
- References to the earlier agreement should be made. All the terms which signify changes need to be referenced with earlier terms for a better understanding.
- The opening statements should reflect the consent of all the parties.
- If any new partners are being added, a statement making the original agreement binding on them should be added.
- In the event of changes to capital contribution or profit sharing, the formula used to arrive at the numbers should also be stated.
- A statement confirming that the rest of the terms in the original agreement remain unchanged should be given.
- Date of implementation should be mentioned. Duration, if any of the restructuring agreement should be included.
- Simple and effective language should be used.
Benefits of a Partnership Restructuring Agreement
A restructuring agreement has the following benefits:
- It captures the changes in a written form and hence makes the implementation easy.
- Such a written agreement also prevents future disputes.
- It provides flexibility to the original agreement. In the event of a change in consensus or any new thing which needs to be added or any redundancies need to be altered, this agreement is beneficial.
- It reduces the costs of re-negotiating the entire agreement.
- It brings all the partners on the same page.
- It makes new entries to the partnership easier.
- It enables new partners to review and negotiate on original terms and modify such terms to be captured in the restructuring agreement.
- It also enables modification from an active partnership to a silent partnership.
A restructuring agreement helps in modifying existing partnership agreements. However, in order for a restructuring agreement to come into effect, the original agreement should provide for amendments based on consensus. Changes to originally agreed terms may lead to disputes later on, hence, an effective dispute resolution clause is required. Mostly, a restructuring agreement refers to the original agreement for such a clause. The parties who are newly added may review the original agreement and suggest any changes they wish to make. Typically, arbitration is chosen as a preferred method of dispute resolution.
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