When two or more people start a business, it is important to develop an understanding about how the business will operate. Ideally, partners should sign a written partnership agreement that covers key decisions regarding the formation and operation of the business.
A partnership agreement is a contract that outlines how a business operates and what role each partner has in the business.
Running a successful business involves deciding difficult issues and investing significant resources, which can lead to disputes if partners do not have a clear understanding of their rights and responsibilities.
While the exact content of each partnership agreement will vary, there are certain topics that a good partnership agreement should address, including:
- How much each partner will invest in the company
- How partners will divide profits and losses
- What percentage of ownership each partner possesses
- How business decisions are made
- How partners can withdraw from the business
- What happens if a partner dies
Another important topic is how partners will resolve future business disputes. Often, partners want to mandate mediation or other dispute resolution techniques.
Finally, an often-overlooked issue is how partners will someday dissolve the partnership. Most businesses will reach an endpoint and forethought should go into when and how partners can dissolve the partnership.
If you are considering starting a partnership or wish to revise a current partnership agreement, it is important that you consult an experienced attorney.
An attorney can advise on what issues to address in the partnership agreement and can assist in drafting a clear agreement that outlines each partners’ rights and responsibilities.