What to Consider in a Partnership Agreement

22 Jun What to Consider in a Partnership Agreement

When starting a business partnership, it’s important to create a partnership agreement that outlines the terms and expectations of the partnership. A partnership agreement serves as a legal contract that binds the partnership, outlining the responsibilities of each partner, how profits and losses will be shared, and procedures for making important decisions.

Here are some key considerations to keep in mind when creating a partnership agreement:

1. Partnership structure: There are different types of partnerships, such as general partnerships, limited partnerships, and limited liability partnerships. It’s important to consider which structure is most appropriate for your business and outline it clearly in the agreement.

2. Roles and responsibilities: Clearly define the roles and responsibilities of each partner in the partnership. This includes outlining who will manage day-to-day operations, how decisions will be made, and what happens if one partner wants to leave the partnership.

3. Profit and loss sharing: Outline how profits and losses will be shared among partners. It’s important to consider factors such as each partner’s contribution to the business, the partnership’s financial performance, and how profits and losses will be distributed in the event of a dissolution.

4. Capital contributions: Partnerships often require capital contributions from each partner. The partnership agreement should outline how much each partner is expected to contribute, when contributions are due, and what happens if a partner fails to make a required contribution.

5. Dispute resolution: Disputes are inevitable in any business partnership. It’s important to include provisions for dispute resolution in the partnership agreement, such as mediation or arbitration, to minimize the risk of a costly legal battle.

6. Non-compete agreements: Consider including non-compete agreements in the partnership agreement to prevent partners from competing against the business in the event of a dissolution.

7. Insurance: Partnerships should have insurance to protect against potential risks and liabilities. The partnership agreement should outline what types of insurance will be required and who will be responsible for paying premiums.

Creating a partnership agreement may seem daunting, but it`s an important step in protecting your business and ensuring a successful partnership. Consulting with a lawyer experienced in partnership agreements can help ensure that all the necessary provisions are included and that the agreement is legally binding and enforceable.