Running a business on your own can be a daunting responsibility, particularly if that business has reached a large scale. That’s why many business owners opt to form a partnership.
A business partnership means that legal, financial and day-to-day responsibilities can be shared. As with all business relationships, it is important that a partnership is founded upon a legally binding contract. This is known as a partnership agreement.
What should be included in a partnership agreement?
The roles of each partner
Clarity is important for many reasons. That’s why the partnership agreement should clearly outline the role of each partner. This lets staff, customers and shareholders know exactly who carries out the different roles in the business. Defining roles in the partnership agreement is also important in terms of preventing partnership disputes. When partners tread on each other’s toes or undermine each other, disputes can arise very quickly.
The finances
A partnership agreement can also outline the financial obligations and rights of each partner. For example, the agreement can state how much money each partner should invest and what percentage of profit they can expect in return. Without including this in the agreement, disputes over money can occur, causing lasting damage to the company.
Dispute resolution
Partners can’t always agree. What matters is how disputes are resolved. Disputes should be resolved sensitively, with the best interests of the company taking priority. Provisions on dispute resolution can be included in the partnership agreement so that drawn-out conflicts are avoided. Clauses can even be included that oversee how the partnership is dissolved if necessary.
A sound partnership agreement can set a business up for success. To draft or make changes to your legal contracts, it will help to seek further guidance.