Business partnerships are a great way to combine resources, skills, and experiences to achieve shared goals. A partnership agreement is an important part of this process, as it provides a clear framework for how the partnership will operate and helps protect the interests of all parties involved.
If you are considering a business partnership, it is important to understand what a partnership agreement entails and how it will impact your business.
What does a business partnership agreement entail?
A proper partnership agreement covers key aspects of the business relationship, helping to establish clear guidelines for the partnership’s operations. These topics include:
- Ownership: Your partnership agreement should specify what percentage of the company each person owns.
- Contributions and distribution: Your agreement should also specify the contributions that each partner is expected to make, whether financial, intellectual, or otherwise. The agreement also defines how profits and losses will be distributed among the partners based on these contributions.
- Dispute resolution: Partnership agreements typically include directions for how disputes will be resolved, whether through mediation, arbitration. or another method, so as to avoid prolonged legal battles.
- Decision making: Your agreement should clarify how decisions will be made within the business. This provision might include a description of voting rights, the process for making major decisions, and how disagreements will be settled regarding the direction of the business.
- Dissolution: Partnership agreements also typically outline the process for ending or dissolving the partnership, whether by mutual agreement, as a result of one or more partners’ retirement, or other reasons. This provision helps ensure that the partners have a plan for handling the business’s assets, liabilities, and any remaining responsibilities.
By addressing these critical points, a partnership agreement helps provide clarity, reduces the potential for conflicts, and protects the interests of all involved. Seeking legal guidance can help ensure that the partnership agreement is properly drafted, covering all necessary elements to protect the interests of each partner and set clear expectations for the future.