Starting a business alone can be hard. Many entrepreneurs manage to find success by finding partners to help them build their dream — and drafting a solid partnership agreement is essential. Partnership agreements allow all parties involved to share the responsibilities and benefits of a business, set expectations and define boundaries.
There are a few matters that should be discussed when drafting a partnership agreement. At a minimum, an agreement should clarify the following:
Extent of the partnership
A business partnership agreement should clearly define the duration of a partnership. For example, a partnership may have a fixed term or end when a specific event occurs. Other agreements may go on until a partner withdraws or passes away. These terms can set certain expectations about the future of a business.
Partnership duties and obligations
Each partner should know their role in a partnership. An agreement can outline specific duties partners are expected to fulfil for a business. Furthermore, an agreement can outline each partner’s fiduciary duties, such as their obligations to always act in the best interests of a business.
Each partner’s ownership
Ownership is a crucial matter to address in a partnership agreement. How much of a business each partner owns can determine the future of the business. Partners who have more ownership of a business may have more voting rights but more liability if a business faces legal issues.
Financial contributions and benefits
Partners may have a financial obligation they must fulfil to be considered owners of a business. A partnership agreement can also outline the profits and losses each partner has from business operations.
Dispute resolution options
While partners may have similar views, major disagreements can happen. A partnership agreement can determine how major conflicts are resolved, such as reaching a mutual decision or dissolving a business.
Professional legal guidance can help business owners draft a partnership agreement that is clear and complete — and that can prevent a lot of trouble in the future.