Partnerships are formed when two or more individuals or entities come together to achieve a common business goal. While the excitement of starting a new venture may be overwhelming, it is important to ensure that all parties involved are on the same page. A partnership agreement is a legally binding document that outlines the terms and conditions of the partnership. Here are some key items that should be addressed in the partnership agreement.
1. Partnership Structure: The partnership agreement should clearly define the structure of the partnership. Will it be a general partnership or a limited partnership? Who will be responsible for the day-to-day operations of the business? Who will make the major decisions? These questions and more should be addressed in the agreement.
2. Ownership Percentage: Partnerships involve the pooling of resources, both financial and otherwise. The partnership agreement should specify the ownership percentage of each partner and how profits and losses will be distributed.
3. Capital Contributions: Partnerships require funding to get off the ground. The agreement should specify how much each partner will contribute to the partnership, whether it will be cash, assets or services, and when the contributions will be made.
4. Roles and Responsibilities: Each partner should have a clearly defined role in the partnership. The agreement should specify the duties and responsibilities of each partner, as well as the consequences for failing to fulfill these obligations.
5. Dispute Resolution: Disputes are bound to arise in any business partnership. The partnership agreement should include provisions for resolving disputes, such as through mediation or arbitration, to prevent costly litigation.
6. Exit Strategy: The partnership agreement should specify the terms and conditions for dissolving the partnership. This includes how the assets and liabilities will be divided, how any outstanding debts will be paid off, and how profits will be distributed.
In conclusion, a partnership agreement is a critical document that helps avoid misunderstandings and disputes between partners. Take the time to address these six key items in the agreement to ensure a smooth and successful partnership.