4 topics to address in your partnership agreement

On Behalf of | Feb 11, 2020 | Business & Commercial |

In general terms, a partnership is a business venture between two or more individuals who share an organization’s management, profits and losses. If you are thinking of forming a partnership, having a well-drafted partnership agreement is essential. After all, for a variety of reasons, your company needs a strong operational framework.

Any good partnership agreement takes care of some housekeeping items. For example, your agreement should include the name of your enterprise, the nature of the business and the type of partnership. Once you take care of those matters, you likely want to address a few other topics. Here are four important ones:

  1. Management 

Managing a partnership requires skill and patience. The task also has the potential to cause conflict. Accordingly, your partnership agreement should clearly define management roles. It should also outline each partner’s authority, in addition to defining each’s decision-making power.

  1. Contributions 

Business enterprises typically need both an initial and ongoing infusion of capital, effort, time and other resources. Your partnership agreement should clearly define the contributions each partner must make. Remember, though, each partner may not contribute equally or add resources at the same time. 

  1. Allocations 

Partners typically share in both the profits and losses of the business venture. For whatever reason, however, each partner may not have an equal share. Using your partnership agreement to define when and how allocations occur is an effective way to set realistic expectations. 

  1. Dispute resolution 

Even in healthy partnerships, disputes occasionally arise. As such, you likely want to include instructions for resolving disputes. Furthermore, to add clarity and minimize conflict, your partnership agreement should provide a framework for adding and removing partners.

Forming a partnership is often advantageous for entrepreneurs and others. Still, your business’s model is only as good as its foundational documents. By covering important subjects in your partnership agreement, you put your business on the path to success.