Running a company is not an easy task. However, it would become manageable if you’ll get a partner who knows how to run and operate a company. Thus, you must have to formulate a partnership agreement. This contract plays a vital role in every partnership as it protects both parties’ interests and rights. But making a partnership contract is tricky and intricate. To ease up the toiling, you can use our downloadable sample partnership agreement templates.
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Partnership Agreement Contracts
What Is a Partnership Agreement?
A partnership agreement is a deal between one or more companies or persons who want to run a business together. In general, each partner will carry initial investments such as capital, intellectual property, real property, or development space to the company. The purpose of this agreement is to protect the business owner’s investment, control the company management, identify the partners’ rights and responsibilities, and decide the rules of engagement if the parties disagree. Whatever the reasons you may have for creating such agreements, the most important thing is that you know its functions. You can check out our partnership templates.
How to Make a Partnership Agreement?
Making a deal with someone is not an easy task. What more if you’ll trust someone to run the company with you? That is why it is best if you’ll have a partnership agreement. It does not only protect your company but also give you a sense of security. But are you sure you are writing the agreement correctly? To make sure you’re doing the right thing, here are the important details that you must include:
1. Name of the Partnership or Agreement
Although it will sound like common sense, the name of the partnership or title of the agreement is one of the first things you and your partner need to agree on. It must be at the beginning of the document together with both parties’ names. Ensure that both parties agreed and recognized the name of the partnership to avoid any confusion or problems.
2. Contribution and Percentage of Ownership
Once done with the title, you must also have to pay attention to is the contribution and percentage of ownership. Make a list of specific contributions that both of you will make to the organization. Aside from the things both of you can contribute to the company, you must also determine or decide the ownership percentage. It is typically determined by the contributions of each partner to the company.
3. Profit, Losses, and Draws Division
You must also include the division of the company’s profit, losses, and draws. Both of you must determine how the company’s profits, losses, and draws can be divided and distributed. Partners may choose to divide earnings and losses in compliance with their ownership ratio, or they may be distributed evenly between partners, regardless of their ownership interests.
4. Partner’s Authority
In a partnership agreement, you should define or establish a partnership authority. Also known as a binding power, it can bind the company to a debt or expose the business to unnecessary risk. That is why the partnership agreement should state each partner’s binding authority.
5. Withdrawal
Although no one wishes to consider the possibility of withdrawal or untimely death of a partner on the edge of launching a new business, this is something that the partnership contract has to mention. The contract may also define the company assessment process and other conditions for keeping a life insurance policy that specifies the other partner as the beneficiary.
FAQs
Who needs a partnership agreement?
Any two or more individual that wants to run a business together must need a partnership agreement. They may be family members, friends, or colleagues. The contract sets out rules and guidelines to avoid issues and disagreements.
What are the types of partnerships?
The types of partnerships are:
- General partnership
- Limited partnership
- Limited liability partnership
- Limited liability limited partnership
What are the benefits of partnership?
The benefits are:
- Easy to establish
- Easy to simplify your taxes
- Easy to dissolve
Having a partner that you can trust to run a business with you is very exciting and marvelous. But even if you trust your partner, it is still necessary to make a detailed contract to record all the points that both of you agreed. It can help avoid confusion and disagreement. The next time you make a partnership contract, use our sample templates. Download it now!
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