Partnership agreements are a valuable tool for any business. Partnership agreements, like any contract, give the parties involved promises that can be relied upon. Agreements also force the partners to think through important issues at the beginning of the company's life.
Here is a list of common provisions in partnership agreements.
- How the profits (and losses) will be divided. Will the profits be plowed back into the business, or will the money go into the partners' pockets? Will the profits be shared equally?
- The roles and responsibilities of the partners. This also can include how much time each partner will dedicate to the business.
- How major decisions will be made. The agreement should include detail on how (and who) will make crucial decisions. Will it be majority rule? Will one person be given the power? Equally important here is to define what a "big decision" is.
- The process for adding new partners. At some point in the future, you might want to add a new partners or partners. The process likely will be easier if you work out the process now.
- Management roles. It's not necessary or desirable to go into too much detail regarding management, but it can be useful to describe who will be responsible for managing specific areas, such as bookkeeping/accounting, marketing and human resources.
- Goals and ambitions. What's the long-range vision for the company? Is it simply a "side gig" with modest revenue goals, or is it a business that will require "every waking moment" from the partners. Finding common ground on this issue can prevent disputes in the future.
- What happens when a partner leaves the business or dies. Partnerships need to anticipate these types of events; buyout agreements can be used to specify what happens in these situations.
- How disputes will be resolved. You and your partners won't always see eye-to-eye on important issues. A partnership agreement should explain how disputes are handled, so the business can move ahead with no damage done.
If you have questions about partnership agreements, speak with an experienced business attorney.