Drafting a Partnership Agreement
Partnerships are a common and sensible business decision, even if many well-known firms are corporations or limited liability organizations. To this point, several of the most prominent tech companies, such as Apple, Microsoft, and Google, began as joint partnerships.
What is a Partnership?
When two or more persons, entities, or some combination of them work together to create a product or service, it is referred to as a partnership. The defining quality of any partnership is that the partners are equally responsible for the business’s earnings and losses.
Without a formal partnership agreement, a partnership can still exist. Partners, like sole proprietorships, do not require legal agreements to be filed with the Secretary of State to operate; they just exist by doing so. A partnership can be threatened by a disagreement since no entity is exempt from conflict. The lack of a written agreement might create issues for partners when legal conflicts emerge.
State laws govern and regulate partnerships. In the absence of a signed partnership agreement, the state with governing authority will use its set of default rules. This can be difficult since a state’s laws may differ from the partnership’s operating procedures. It is vital for partnerships to have a formal partnership agreement that parties may reference in the event of a problem. An attorney can assist your partnership in drafting a thorough partnership agreement.
What Should Partners Address in Partnership Agreements?
Partners should establish an agreement that includes provisions that appropriately express the partners’ goals in order to preserve each partners’ interests while also providing direction in the event of a disagreement.
The following are some of the most typical topics covered in partnership agreements:
- Profit and loss allocation – by default, partners agree to share earnings and losses equally. Partnership agreements, on the other hand, may specify the percentage for which each partner is accountable.
- Initial investments – partnership agreements should specify each partner’s initial investment, as well as the portion of ownership stake each partner will maintain.
- Guidelines for making business decisions.
- Each partner’s roles, responsibilities, and power – this is critical since a partner’s actions can have a direct influence on the relationship. The partners’ expectations of one another should be set out in the contract as a partnership may be held accountable if a partner acts outside of their power.
- Under what circumstances new partners may be introduced.
- How disagreements will be handled.
- Procedures for dissolving the partnership.