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What Is a Partnership Agreement?

A partnership agreement is a written agreement between partners who are running a business for profit. The agreement explains the relationship each partner has with the partnership business. The partnership agreement also details the rights and obligations each individual has to the business.

Why Are Partnership Agreements Important?

Partnership agreements are extremely important when partnering up with other people to run a business because the agreement legally allows you to structure your relationship with your partners in a way that would suit your business. They also detail each of your and your partner’s rights and obligations, in addition to setting out the provisions of running your business partnership.

These agreements will also help resolve any future disputes if they arise and also details the individuals who would have authority to make decisions on behalf of the partnership business.

What Should Be Worked Out Ahead of Time in an Agreement?

In order to have a successful business partnership that will operate smoothly, you will want to create an agreement ahead of time that ensures you have an organized structure to your partnership that lets each partner know of their responsibilities as well as how future disputes can be resolved.  Some of the basic elements of a partnership agreement are: 

  • Amount of Ownership by Each Partner – Determine how much each partner is contributing to the company in terms of finances and property, and how much each partner will get in return in terms of profits
  • A System for Making Decisions – There should be an agreed upon way in which major decisions are made in the partnership, whether it be by a unanimous vote or some other method.
  • Authority for Different Parts of the Business – The agreement should also set out a system of management, explaining who is in charge of what aspects of the company, such as accounting, customer service, etc.
  • Buyer-seller Agreement – You should have a plan for what happens when one of the partners leaves the business because of death, quitting, termination, or any other unforeseen circumstances. It is important to determine how that former partner’s portion of the business will be divided up between the rest of the partners.
  • Adding Partners – There should be a procedure for how new partners will be added to the business, especially when it comes to who gets to be a part of that decision and how much say they have.
  • Disputes – It would also be wise to add to the agreement a procedure for resolving any disputes that should occur between partners.  Some disputes can bring a partnership to a screeching halt, so it would be in the best interest of everyone if you had a way of quickly and efficiently resolving any dispute.
  • Salary and Distribution – The partnership agreement should also detail how much contributions each partner has made to the business and how much return investment or salary they will receive from the business.
  • Debt and Obligations – The partnership agreement should detail the obligations each partner has for the debt incurred by the business in order to prevent any dispute or confusion when the partnership business comes to an end.
  • Partnership Authority – It is important to detail each partner’s authority relating to the business. Without an agreement that details each partner’s authority, any partner would have the permission to bind the partnership business to any contract, debt, or agreement.

Should I Consult an Attorney before Writing up a Partnership Agreement?

A business attorney can help you with the legal aspects of starting a partnership. With the help of a business attorney, you can be confident that your agreement is legally enforceable and business-savvy.

Photo of page author Kourosh Akhbari

, LegalMatch Legal Writer

Last Modified: 11-29-2017 01:26 AM PST

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