-Getting into a business yourself is as good as the profits it comes with. But joining forces is completely a different case. So, whenever starting a business with a partner, ensure everything is in place. One of the things here includes structuring the business with a partnership agreement.
What is a business partnership?
This legal contract is a much-needed tool in defining the operations of a business. It also includes the roles of each partner and dispute resolution techniques. With a partnership agreement, sharing profits and losses become easier.
Business partnership touches on every aspect of a business. And that is what brings the biggest question of how to make a business partnership agreement. Some people believe a lawyer is the only option when making a business partnership agreement. But that is never the case at all. Today, you can leverage online platforms like Forms. Legal, LLC to make your business partnership agreement.But before you make one, it is a priceless idea to know what you are dealing with. This, in essence, is to say that you should know what a business partnership agreement entails. Below are some of the things that a business partnership must have.
Essentials of a Business Partnership Agreement
Name of the Partnership
As a stakeholder in a business partnership, naming is one of the things you must agree on. How you name it doesn’t matter; go for something that suits and includes everyone’s opinions. But also ensure you don’t go for a fictitious name. That way, you ensure the name isn’t already in use somewhere.
Partner Contributions
The partnership agreement should include initial member contributions. It would be best if you decided on how you are going to make these contributions. It can either be in cash, property, or service to the business before it opens. Also, ensure you check on the ownership percentage the partners will have.
Allocate Profits and Losses
This is yet another essential component of a business partnership agreement. Ideally, the partnership should decide on how they will allocate the gains and losses. Will it be proportional to each partner’s percentage interest in the business? What is the perfect time to distribute these profits? Of course, people tend to disagree on these issues, so it is great to clarify them.
Partners Authority
Partners in a business partnership agreement don’t have similar rights and authority. The contract will define the authority of the partners based on their roles and purpose. For instance, who, when, and why a partner can act on behalf of the partnership, It also sets some limits on these actions.
Management Duties
A partnership at every level requires management. And a similar case applies to a business partnership agreement. It is an excellent idea to define in advance who will do what and who handles what. Who will keep the books? Who enters tax agreements and negotiations on behalf of the partnership? Who deals with customers and so forth?
Resolving Disputes
Conflicts are usually common in partnerships. But how people address them is what brings the biggest difference. Would going to court in case of a deadlock be the best step to take? The court option, of course, may be beneficial at some point. Yet, your partnership must include other conflict resolution strategies like mediation.
Voting
The Partnership Contract specifies the circumstances that require casting a ballot. It elaborates the problematic questions on, which choices need a vote, and which don’t? Do all partners get equivalent democratic rights? If not, how are the democratic rights assigned?
Partners Withdrawal and Demise
As you lay the rules for admitting new partners, also include rules for handling departure. Whether it is due to death or a self-made decision, ensure you have a practical buyout plan for this. The dissolution may be due to the death of a partner, project completion, and bankruptcy.
Business Dissolution
The business partnership agreement should outline the dissolution plans when the time comes. This may include continuity and succession plans when one opts from the entity.
It is no doubt you may wondering how to make a good business partnership—fortunately, Forms. Legal, LLC is here to assist. We have free Partnership Agreements templates that can be of great value to you. Just fill in the forms on our website to make your Partnership Agreement in any US state.