Pre-incorporation Partnership Agreement

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Introduction

Operating a business during its start-up phase through a corporation or company is not always desirable. Often, a business opportunity can be realized in gradual steps, which makes it harder to justify the incorporation of the business involving two or more persons. When the business requires as an official starting point the realization of a specific event (grant of a patent, acceptance of a proposal, favourable market study, the execution of a material agreement, etc.), it may be preferable, for commercial or tax reasons, that the partners involved in the project start their association as a pre-incorporation partnership until the business project is officially launched, at which point the pre-incorporation partnership is transformed into a corporation or company.

To ensure the smooth functioning of such evolving association, it is prudent to specify the rights and obligations of the parties involved in the project, both prior to and after the event so as to solve, at the beginning of the partnership, all the issues which may impede the transition from a temporary business (general partnership, limited partnership, undeclared partnership, etc.). to a more permanent business (corporation or company). To solve the specific issues caused by this situation, a pre-incorporation partnership agreement is used. The following document provides the legal, economic, organizational and operational framework of such a society.

Description

The Pre-incorporation Partnership Agreement is the legal instrument which is used to evidence the operation by which two or more person agree to collaborate to launch a joint project on a temporary basis, while waiting for an event which will justify tranforming the partnership into a duly constituted corporation or company.

Use

For various reasons, persons who want to create a legal person may wish to first establish a legal relationship before incorporating a company or corporation. In such a case, in order to define the legal status of the parties, it is recommended that such persons execute a pre-incorporation partnership agreement before doing anything else. This agreement aims to regulate the rights and obligations of each party during the transitional period between the launch of the business and the incorporation.

In the absence of such contract, the transitional period may become a source of instability for the business prior to its launch. A partner may change his mind during the process or wish to change its position within the business, which changes the entire situation. It is therefore very important that, during the initial phase, each party agrees in writing to comply with certain obligations.