How to Create a Business Partnership Agreement

How to Create a Business Partnership Agreement

If you plan on going into business with a partner, a written agreement is important. Without one, conflicts may arise, minor misunderstandings can escalate, and your state’s law will control many aspects of your business.

How a partnership agreement helps your business

A partnership agreement allows you to structure your relationship with your partners. You and your partners can establish profit shares, responsibilities, what happens if a partner leaves, and other important guidelines.

Uniform partnership act

Each state (except Louisiana) has its own laws governing partnerships, contained in the “Uniform Partnership Act” or the “Revised Uniform Partnership Act.” These statutes establish basic legal rules that apply to partnerships, unless you set out different rules in a written agreement.

Don’t rely solely on state laws. Instead, put your agreement into a document that specifically outlines the points you and your partners have agreed on.

What to include in your partnership agreement

Consider these issues before putting the terms in writing:

– Name of the partnership: Agree on a name that isn’t already in use.

– Contributions to the partnership: Determine who will contribute cash, property, or services and their ownership percentages.

– Allocation of profits, losses, and draws: Decide how profits and losses will be divided and whether partners can make regular draws.

– Partners’ authority: Clarify whether partners can bind the partnership without consent.

– Partnership decision-making: Establish decision-making processes, requiring unanimous votes for major decisions.

– Management duties: Clearly define the role of each partner in managing the business.

– Admitting new partners: Agree on a procedure for bringing in new partners.

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– Withdrawal or death of a partner: Create a buyout scheme to handle departures.

– Resolving disputes: Consider alternative dispute resolution, such as mediation or arbitration.

Have you gone into business with a partner without a written agreement? Share your experiences and questions in the comments.

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