If parties are in business together without having set up a company, Irish law automatically deems those parties to be in a business partnership. If the terms of the partnership are not reduced to writing, then the Courts will analyse the performance of the parties in business together to determine the terms of the partnership. Most commonly, a Court will look mostly at how profits are divided to determine the interest or share each business person has in this venture.
You should be aware, however, that, in terms of risk and personal liability, under Irish Partnership Law, it does not matter if parties are contributing in different shares to a business. Where debts to third-party creditors are involved, the law will treat all partners as having full joint and several equal liability. In other words, each business partner will be individually fully and personally liable for each debt of the business. It will be a matter for each business partner then to recover from the other partners in line with their agreed percentage contribution towards the business or their interest in the business.
Where a business partnership is not working, any one of the Partners involved can apply to the Courts for a dissolution of the partnership.
The structure of Irish law means that it is essential to have a Partnership Agreement drawn up for the proper protection of each of the partners involved in any business not operated through a company. Operating a business without an agreement will result in inevitable disputes over the division of profits and responsibilities and make the dissolution process very costly.
Companies and Shareholders
Where a company is incorporated to run a business, the other thing that parties should give priority to is a properly constructed Shareholders Agreement. This defines the working relationship between two parties and gives suitable protection in the conduct of the business of the company by both or either of them. For example, certain events in the business can be controlled, e.g. drawings from the company’s account by either shareholder/director or the conditions in which the liabilities of the company may be increased by way of bank borrowings or hire purchase finance. Such an agreement is critical for people who otherwise may not be familiar with each other’s means of doing business.
A Shareholders Agreement, more notably, will also assist in a situation where one party wants to exit the company, but the other wishes to remain by securing “pre-emption rights” over the shares of the other party. These are rights of first call over the shares of the over party. These rights protect the business owner from the possibility of finding another party involved with the business with whom they have no familiarity.
Notwithstanding the extensive company law in Ireland, the success of any business relationship depends essentially on the success of the relationship of the people doing business together. It is important at all times to ensure that any partnership or co-owned company is based on a mutual relationship of trust so that recourse to the law can be kept to a minimum. If matters are properly regulated in terms of your paperwork, then each party stands the best chance of having a successful co-venture with a clear understanding and definition of each other’s roles.
We act on, advise and draft Shareholders’ Agreements and Pre-emption agreements and Put & Call options. Where incorporation is not desirable or necessary for the people conducting business together, we also act and advise in relation to Partnership Laws and draft Partnership Agreements to properly regulate the conduct of business between partners. For any enquiries for a no-obligation consultation or again just to meet us for a chat, please contact: