A partnership agreement is essentially a contract between you and your business partner. It defines your relationship. It helps to establish the business, and it gives you both an idea of what you should expect from one another. This can be very helpful moving forward.
That being said, many business owners are getting into this area for the first time. They’ve never run a partnership before and they don’t know what needs to go in that agreement. It’s wise to carefully consider all potential issues that you want to address well in advance.
8 things your agreement can include
Every partnership agreement is going to be unique based on the individuals involved and the business that they are starting. But below are eight things to get you started, which you can use in your agreement:
- The length that the partnership will last
- How you’re going to split the profits
- What ownership percentage you both have
- Who will be responsible for the business’s debts
- What happens if one business partner passes away or wants to leave
- Who gets to make decisions and when you have to work together to do so,
- What authority you each have over each other and the specific roles you have within the business
- How to close the business down or retire
Using a business partnership agreement can make your company more stable, and it can also guide your hand if a dispute arises. For instance, many business partnerships will have dispute resolution clauses discussing the steps that should be taken.
These agreements can also help to prevent disputes by defining areas where disputes are common – such as earnings and roles. But, if a dispute does happen, business partners also need to be aware of their legal options.