Important Elements Every Business Partnership Agreement Should Address (Part I)
When a business is set up by a means of a partnership, it can thrive on the basis of several benefits. A business partnership has the advantage of having diverse skills, knowledge, and resources. A business partnership is similar to that of a sole proprietorship, whereas each partner will own a segment of the business’ assets and liabilities.
Partnerships can present several difficulties, however. It is important to address important elements regarding starting and running the business. Having several people making decisions for the business could complicate things, therefore, entering into a partnership agreement is highly recommended. A good partnership agreement will detail the terms of ownership and the responsibilities of either partner. The more detailed the partnership agreement is at the beginning there will be less disagreements throughout the endeavor.
The following includes some of the most important elements business partners should consider having in a business partnership agreement. For a more customized approach, consult an experienced business attorney who can help to ensure that your business partnership agreement is suitable for your business as well as your personal needs.
- One of the most troublesome areas for business partners is the separation of responsibilities. A verbal agreement may seem the fastest way to decide who will be responsible for what, but this approach leaves plenty of room for miscommunication and ambiguity.
- Each partner’s responsibilities should be clearly stated in a business partnership agreement.
- The amount of contributions each partner will be making should also be clearly stated. This could include economic contributions, time, clientele, effort, or equipment.
Distribution of Business Profits & Allocation of Losses
- It is important to outline on a business partnership agreement how the profits made by the business and losses will be allocated. For instance, how much each partner will be paid and when.
- It is also important to define if the partners will be paid on a salary or contingency basis.
- A sturdy business partnership agreement should include an outline of different scenarios when it comes to the ownership of the business. For example, a plan in the event that a business partner wants out of the partnership, in the event that the business needs to be sold, etc.
- It is also a good idea to draft a non-competence agreement or clause. This document will serve to protect the business in the event that the business partners decide to part ways. It could serve as a barrier so that no partner attempts to steal the ideas or clients of the business.
- Setting up a structure that will allow all parties to make decision is essential for all business partnership agreements. Setting a foundation before any decisions need to be made will promote a friendly and amicable business environment.
- The best partnership agreements will prepare for the disputes that are bound to happen in a partnership.
- This segment should also cover arguments where there is no solution in sight. Will the business dissolve or will the partners decide to amicably enter into mediation?
The Bottom Line
If you have entered into a business with a business partner, or intend to, you should know that it is highly important to enter into a business partnership agreement. With a sturdy agreement, you will not only be protecting your rights as a partner, but those of the business as well. Consulting with an experienced business attorney can help to customize the agreement to suit your needs.
The attorneys at the Knez Law Group are experienced in the area of business partnerships. If you have entered into a business partnership, it is eminent to understand the essential elements of a business partnership agreement. The attorneys are the Knez Law Group are a dedicated team of attorneys who have successfully represented many clients who have entered into business partnerships.