Partnership Agreements: 6 Key Things To Consider
What is it?
A partnership agreement is a contract between two or more people who go into business together. It sets out the percentage ownership of each party, the method of distributing the businesses profits and losses, the rights and responsibilities of each partner in the operation of the business, and any other factors that the parties consider relevant in the circumstances.
Application for small business people
Small business people will often choose to work with others in mutually beneficial arrangements. Working with other people brings additional skills, resources, knowledge and capital to the business, which can dramatically enhance the overall success and profitability. Collaborating with others on business ventures also creates the potential for disputes if the roles and duties of each party are not understood. This is why entering into a clear and thorough partnership agreement is so important.
The contents of a partnership agreement vary significantly depending on the nature of the business and the relationship of the parties involved. A partnership agreement will almost always contain provisions on the initial capital contributions made by each party, and their respective ownership of the partnership. This is typically linked to the process for distributing profits and losses.
It is important to note that a partnership is not a separate legal entity like a company would be. This means that the partners are jointly and severally liable for any outstanding debts incurred by the partnership.
6 key things to consider
In order to avoid potential disputes, and to help a partnership to run smoothly, the following should be considered before entering into a partnership agreement:
- What is the term of the partnership and how the agreement can be terminated?
- What are the rights and responsibilities of each partner?
- What is the process if one partner wants to sell his or her share of the partnership?
- How much authority does each individual partner have to make agreements that will bind the partnership?
- How will profits and losses be distributed to the partners?
- How will disputes between the partners be resolved?
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Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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