A partnership agreement, if singed, is one of the most informative documents regarding a partnership business. This document generally governs all the affairs of the partnership. For instance it reflects the objective of the partnership, the duties of each general partner, matters on which the vote of the limited partners is applicable, the share of partnership capital and profits to which each partner is entitled, and all other matters affecting the relations between the partners.
Once you have decided to form your partnership business, the next thing is to prepare the partnership agreement. The agreement can be formed in two ways. Either you may agree orally or you can prepare a written document. Sometimes people tend to have oral agreements for short term ventures. However let it be short term or long term, the best option is to go for a written agreement. This way you will avoid potential misunderstandings and disagreements.
The following sections discuss what you may consider including in your partnership agreement.
Introducing the partnership
This includes the basic details of the partnership such as the name, the address of the business premises if any and the details of the partners. Length of partnership is another important detail which is applicable where the partnership is intended to cease on a certain date. In addition a brief description of the business and its purpose is also generally advised.
Partners
This includes a detailed description of the partners and their contribution to the partnership. Here the powers and duties of each partner including any limitations or restrictions should be explicitly stipulated. Also a detailed discussion of information such as amount of equity invested by each partner and how profits and losses will be shared among the partners will be essential. In addition it is advisable to include partners’ pay and compensation as well.
The partnership agreement is also expected to provide guidance on how partners can leave the business and how new partners can be added. In addition this should also stipulate the procedures in case of death or incapacitation of any partner.
Dispute settlement
A carefully thought out way of resolving conflicts should be discussed under the dispute settlement clause. This will be pivotal as any business partnership is subject to disputes and conflicts. If a guideline is provided in advance, you can prevent the controlling parties exercising the power to their benefit. In developing this clause you need to consider all the imaginable situations and the impacts of them.
Dissolving the partnership
In case of a conflict or for any other reason, a partnership may require to be dissolved. The partnership agreement should clearly state what steps must be taken in such a circumstance. Distribution of assets on dissolution will be a key aspect that has to be specifically addressed under this section. Otherwise it could lead to additional conflicts as every partner tries to maximize his or her share.
The above sections include a set of general guidelines on what should be included in a partnership agreement. The actual requirements may vary depending on the case and therefore it is highly advisable to get the assistance of a qualified business consultant prior to the preparation of the agreement.
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