Jerry J. Goldstein

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What every partnership agreement should address

On Behalf of | Jun 7, 2024 | Business Formation

Starting a business partnership can be exciting and rewarding. However, it also comes with challenges that need careful planning. A clear partnership agreement is necessary for success. This document sets the rules and helps avoid misunderstandings.

Here are key points that every partnership agreement should address.

Roles and responsibilities

A partnership agreement should define each partner’s roles and responsibilities. This includes daily tasks, decision-making authority and specific duties. Knowing who is responsible for what helps ensure smooth operations. It also prevents conflicts by setting clear expectations from the start.

Capital contributions

The agreement should detail how much capital each partner will contribute to the business. This includes cash, property or other assets. It should also specify what happens if additional funds become necessary. Clear guidelines on capital contributions ensure fairness and transparency.

Profit and loss distribution

Partners need to agree on how to share profits and losses. The agreement should outline the percentage each partner will receive. It should also explain how and when distributions will occur. Clear profit and loss distribution terms help avoid disputes and ensure everyone is on the same page.

Decision-making process

Partnerships require joint decision-making. The agreement should outline how to arrive at decisions. Will all partners have equal voting rights, or will some decisions require a majority vote? Clear decision-making processes ensure everyone has a voice and understands how to handle important choices.

Dispute resolution

Disputes are inevitable in any business relationship. The agreement should include a process for resolving conflicts. This might involve mediation or arbitration.

Exit strategy

Every partnership should plan for the future, including potential exits. The agreement should outline what happens if a partner wants to leave. An exit strategy provides a clear roadmap for transitions, protecting the business and remaining partners.

By covering these areas, partners can help prevent misunderstandings and build a strong foundation for their business.