Basing your partnership on a handshake and the promise that you will always work together to resolve any issues is not a good idea. You need more than that to protect the business and preserve relationships with your partner. A partnership agreement can help you achieve this.
Think of a partnership agreement as the constitution of your business. Should anything go wrong or you need clarification on something, you can always refer to the legally enforceable agreement all partners signed when creating the partnership. Here are some of the things you should have in a partnership agreement.
The duties and responsibilities of each partner
It is crucial to define the duties and roles of all partners so that everyone understands what is expected of them. That way, there won’t be disputes about how the partnership will operate. The agreement should also outline the decision-making authority of each partner.
Percentage of ownership and division of profits or losses
Your partnership agreement should dictate every partner’s financial contribution and stake in the business. It should also outline how revenues will be apportioned among the partners. It is necessary to ensure everything is clear on this front from the word go since financial disputes are a common reason for fallouts among business partners.
Procedures for adding or removing partners
At some point, you may need to add or remove partners. It is important to include such provisions in your partnership agreement. Otherwise, you may face a real headache when the time comes, which could affect business operations.
Dispute resolution among partners
Conflict is almost inevitable in a partnership. It could be due to a misunderstanding about finances or other aspects of the business. Therefore, you need to anticipate partnership disputes and include instructions on resolving them in-house without first rushing to court.
Do not leave any loopholes
A solid agreement can save your partnership a lot of trouble, legally and financially. Therefore, do not take any chances with this crucial document. It is not advisable to adopt an existing partnership agreement thinking it will work for your business.
When crafting a partnership agreement tailored to your business, it is best to seek informed counsel to ensure that there are no loose ends.