When you decide to enter a business partnership, securing a partnership agreement for your new founded business is deemed to be essential. These documents help to ensure that every member of the partnership is secured and protected from any situation that can cause confusion and any disputes.
If you ever need a guide to writing one, we are here to help you out. We will discuss some of the important factors that these agreements should cover plus why these are considered to be important. We have also included a few free sample agreements that would make the drafting of your agreement easier. Continue reading our article to find out more.
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What Is Partnership Agreement?
A partnership agreement is basically a written document stating that two or more parties have agreed to form a partnership. Typically, it would state what the nature of the partnership is, capital contributions, and most of all, the rights and responsibilities of the members involved with the agreement. Partnership agreements can either be written or verbal. A verbal partnership agreement, however, would be more difficult to prove compared to a written partnership which has a clear paper trail and a physical document that proves everyone involved has agreed to the terms and conditions that were stipulated in the agreement.
What to Include in a Partnership Agreement
In a partnership, it would be a good idea that you and partner/s are able to spell out the rights and responsibilities of each member on paper. Aside from the fact that your partnership agreement is deemed to be a legal document, it also serves as a reminder of what each member’s responsibilities are. You may also like partnership agreement contract samples.
Business partnership agreements are also helpful when conflicts arise. It ensures that you have a good document that can serve as proof and can help you resolve said conflicts and avoid turning it into bigger issues. In some states, if your existing partnership has no written agreement, the state’s laws can take control of some aspects related to your business.
So what should you include in a general partnership agreement template? We will give you a list of what this type of agreement typically covers. A tip we would like to give before we start giving you the list: make sure to discuss these things first and make sure that each and every one who is involved with partnership agrees with the provisions to be included in the agreement. Ready?
1. Name of the Partnership
For sure, before you started discussing with your partner/s the terms and conditions of your partnership, you may have already thought about what you would name your business. This should be the very first thing that you and your partner/s should agree on. You can make use of your surnames such as Peterson and Smith Financial Services, or you could also opt for a fictitious or made-up business name. However, when it comes to naming your business, you should make sure that the name is not taken yet. You can check with your county clerk if the name you want for your business is already taken or otherwise. It would be a good idea to list down a few names that you think would be a good fit for your partnership and list them down according to most prioritized to the least prioritized. This way, in case your first choice is already taken, you can start moving to the next on your list. You may also checkout real estate partnership agreement templates.
2. Amount of Contribution
It would be a good idea for you and your partner/s to list down who contributed cash and how much each has contributed to the partnership. Contributions can also be in the form of services or property. Through the contributions, you and your partner/s will know the amount of ownership percentage of each member involved. You may also see domestic partnership agreements.
3. Financial Allocation
This talks about whether profits and losses will be divided between partners equally or according to the percentage of ownership, and if each partner is entitled to a regular draw or if profits will be distributed at the end of the year. Money is a big deal between partners in business, so you should make sure that everyone has a clear understanding of how finances will be divided between partners. Our Financial Plan Samples and Templates article can help you plan the finances of your business.
You want to make it clear in your agreement if you want a partner to ask for the consent of the other partner/s for certain transactions or if there is no need for such.
5. Managerial Duties
You will also state in your agreement what managerial duty each member of the partnership should be doing. This will include duties such as bookkeeping, customer relations, business supervisor, or supplier negotiations. Talk about what kind managerial duties your business would be needing and who will take care of what.
6. New Partners
As you expand your business, you might find that it might be more convenient to add another partner to the business. Discuss the procedures that you would like to have when it comes to adding new partners to the business. This way, everything will go smoother. You may also check out partnership agreement checklist samples & templates.
7. Death and Partner Withdrawal
If you talk about how the process you would need to undergo when it comes to adding a partner or partners, you should also talk about the process of what the process is if a partner withdraws from the agreement and if one of the partners passes away.
8. Resolving Issues
Talk about how you can resolve issues: do you talk it out or do you directly go to court? Talk about what circumstances can be resolved between the partners and which ones can be resolved in court. You may also see partnership dissolution agreement templates.
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Why Is a Partnership Agreement Important?
A simple business partnership agreement is important for a wide variety of reasons. It can help you out when you start getting confused, when disagreements arise, or if changes are to be implemented. To give a more in-depth discussion about why partnership agreements are considered to be of importance, we will give you a quick list of reasons. Read it all here.
- Roles and responsibilities will be set. This will be a good reference to what each partner’s role is.
- You can set the tax status of the partnership in your agreement.
- You can avoid legal and liability issues setting what the liability of each partner is.
- This can help you deal with changes.
- It sets the circumstances that would allow new partners to enter the partnership.
- It can help you override any state laws.
- It can help you deal with disputes in an easier manner.
Is an Attorney Needed During the Preparation?
Having an attorney present during the preparation of your business partnership contract can help to properly state what you want to say. It can help to ensure that the wording of your agreement is correct and also ensure that everything is stated clearly and in a concise manner.
It may seem like an expensive investment to hire an attorney to help you out compared to if you are just gonna do it yourself. However, it would be better to do so if this would be the first time that you are writing a partnership agreement or if you do not have any experience with writing agreements.
Now that you have learned more about partnership agreements, it is high time that you start drafting one for your business partnership. If you ever need a checklist regarding a partnership agreement, checking out Partnership Agreement Checklist Samples and Templates would help you out.
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