A business partnership agreement is crucial as it helps to establish clear business operation rules regarding each partner’s role in the partnership. These agreements will be enacted at the time of disputes, to delineate responsibilities and to define how the companies handle their profits and losses. A partnership usually takes place between two or more people who own a stake in the company. The agreement is a legal document that offers critical guidance based on company operations.
Elements of a Business Partnership Agreement
The legal document is comprised of the business’s legal purpose and structure highlighted in the information given below:
- Capital contributions
- Individual partners’ responsibilities
- Each partner’s ownership interest
- Partnership property
- Decision-making conventions
The agreement should also outline the steps that would be taken when one of the business partners decides to leave the company or sell their interest. In that case, the company must be running based on the decisions of the other partners who would split the profits and losses of the company.
How to Write a Business Partnership Agreement?
The agreement must consider all the foreseeable issues based on the business’s co-management. The easiest and most convenient way to prepare a partnership agreement is to hire an attorney who helps to find a customizable template. The business partnership agreement follows a logical process, focusing on the following aspects of business information. Such as,
- Business Generalities - Start with general information such as business name, location, and structure which will governed by the State’s law.
- Business Operations - You need to state the partnership’s purpose and explain the activities in which the company will and will not engage.
- Ownership Stake - The agreement must spell out the percentage of business that is owned by each partner along with their rights and abilities concerning the stake they own.
- Decision-making Process - It is important to state how decisions will be made by each partner and what are their roles in the decision-making process. It must also outline who has the financial control and who will approve that decision to avoid conflict among the partners.
- Liability - When the business partnership takes place as an LLC, the partnership agreement must limit the liability for each partner if a business lawsuit happens. That is why the agreement must be paired with other documents to support the legal responsibilities.
- Dispute Resolution - Every partnership agreement must consist of a dispute-resolution process as disagreements are quite a common factor in business when the partnership is involved.
- Business Dissolution - One or two partners may be willing to dissolve the business and in that case, the agreement must outline how the dissolution will take place. Whether the partners are willing to join or leave the partnership, the process should be clearly stated in the agreement.
Different Stages of Business Partnership Agreement
A partnership agreement is not rigid but should be flexible enough to add or remove from the agreement as the business develops. It is quite common for unforeseen circumstances to occur and therefore, the agreement can evolve with time as well. The four primary stages of a Business Partnership Agreement are,
- Initial partnership
- Addition of limited partners
- Addition of full partners
- Continuity and succession
Concluding Thoughts
A business partnership agreement helps to establish a set of agreed-upon rules and procedures that help to acknowledge problems before they occur. The agreement helps to protect all the partners without letting things go sour. Therefore, you must establish an agreement and incorporate yourself as an entity.
