Legal Experience and Local Roots

Offering professional legal services to individuals and businesses since 1986.

What should a partnership agreement include?

On Behalf of | Jun 10, 2024 | Business & Commercial Law |

When starting a business, you may have to make vital decisions necessary during formation. Some establishments start small and pivot their strategy based on their progress, such as establishing partnerships. This option can be beneficial, but only if the setup is legally sound.

To create a clear and solid business partnership, involved parties can use an agreement to indicate terms involving labor, expertise, knowledge and other resources or investments necessary for the arrangement’s feasibility. A partnership agreement should also include details crucial to both parties, including the following:

  • Ownership division —These terms specify each partner’s contribution and responsibilities to the arrangement, whether they will contribute specific amounts to cover costs or provide equipment and services. Mapping out these details can help avoid confusion while establishing the setup and later when issues arise.
  • Allocation of earnings and losses — The agreement should indicate what happens to the money that goes in and out of the business, including division terms and withdrawal schedules.
  • Partnership details and authority — This information can include the arrangement’s duration and the extent of each partner’s authority, such as when binding the company for business-related debt.
  • Preferred methods to address vital developments — The agreement can include what steps to take when settling disputes or making decisions, such as implementing a voting system or using mediation. This document can also determine what happens after a partner’s death or withdrawal.

Other terms can also apply based on the partnership’s details and the nature of the business.

Using a partnership agreement effectively

There is no one-size-fits-all approach to creating a partnership agreement. The business may require unique conditions based on the partners and the company’s needs.

Without proper consideration of these necessities, the agreement might become ineffective, possibly causing preventable problems. Even before establishing a partnership, seeking legal guidance could be beneficial. Doing so can help plan and prepare while addressing concerns during the partnership’s formation.