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What should I include in a partnership agreement?

On Behalf of | Jan 20, 2021 | Business Law |

Choosing the right entity — or structure — for your business is a major decision. The various different types of business entities each have a different impact on taxes, legal liability, operational requirements and more.

In addition to sole proprietorships, corporations and limited liability companies, there are also partnerships. Partnerships are businesses owned and operated by several people. There are general partnerships, in which partners share operational obligations and debts equally, and limited partnerships, in which there are general partner(s) who are primarily investors.

Business owners participating in a partnership should be sure to create an agreement that protects them against any issues that might arise in the future. Here are a few important questions to consider in your partnership agreement, so you can rest assured you are protected.

What happens to shares upon death or disability?

In some cases, shares will automatically pass on to the other partner or partners. In other cases, shares will pass on to the deceased partner’s spouse. No matter what you ultimately decide, it should be explicitly spelled out in the agreement so there is no confusion should the unthinkable occur.

How much is each partner investing?

Some partners invest more money, while others invest their time in getting the business up and running. Some partners may also choose to provide the essential equipment for operations as part of their investment.

How should responsibility be shared?

Issues often arise when one partner believes they are doing the lion’s share of work. When duties and responsibilities are clearly stated, disputes can be dealt with more efficiently.

How will disputes be resolved?

Arbitration is a common method of dispute resolution in partnerships. An arbitrator is an impartial third party who listens to either side of the case and makes a decision to resolve the dispute. Partners can also leave the option of a jury trial open.

Partnership agreements ensure your business can run smoothly. They also provide a blueprint for problems or issues that might arise. Their primary purpose is to protect all parties and give the business the best shot at success.