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What should a partnership agreement address?

On Behalf of | Aug 16, 2023 | Business Law |

Partnership agreements can be essential to maintain order within a business operating under two or more parties. This contract typically contains each party’s ownership, responsibilities and management obligations. It can also include specific resolutions or procedures for significant concerns and situations.

A partnership agreement could also work as an established guide containing agreed-upon directions for decision-making, dispute resolution and other vital issues regarding the business. It can indicate the proper course of action for each party if one of the partners terminates their involvement or passes away. This contract could have various terms and conditions, but it should address the following concerns crucial to each party’s interest:

  • Business ownership: This information is necessary to determine each party’s stake in the business, often expressed in percentages.
  • Decision-making methods and procedures: Since multiple parties have rights to the business, they should all have a say in significant business decisions. A straightforward decision-making process helps maintain fairness and impartiality.
  • Contribution of each party: These details provide information about what and how much each party will contribute. Sometimes, a partner can contribute property or service instead of funding. This portion could also indicate possible funding sources if needed.
  • Profit allocation: Establishing profit distribution guidelines that consider each partner’s interest is essential.
  • Incapacity or death of a partner: These significant incidents could affect ownership of business shares and duties. Having rules to determine what happens in these sudden instances could help keep the business running while keeping rights and ownership in order.
  • Adding or removal of a partner: When adding or removing partners, it is vital to have regulations concerning shares, rights and responsibilities. These standards help maintain agreeable conditions among all parties.

Additionally, partners can include other terms based on the business nature and operation.

Benefitting from a comprehensive partnership agreement

A well-drafted partnership agreement could yield benefits for all partners in the business. Aside from solidifying financial and tax concerns, specific conditions in the contract may also mitigate issues caused by disputes and present potential resolutions that are satisfactory to the involved parties.