Starting a New Partnership Agreement Using a Loan
The proposition of starting a new business can be exciting, especially if you are taking on this venture with a trusted partner or two. However, creating and operating your own company also involves an abundance of challenges.
Whether you encounter financial hardships or later decide to dissolve your partnership, all parties must protect themselves if something goes wrong.
To best insulate yourself from the risks of starting a business is to create a detailed free partnership agreement. Like many other entrepreneurs, you might also need to borrow money when launching your new company. If so, then you should fill out a free loan agreement, as well.
What Is a Partnership Agreement?
For the purposes of creating a business, a partnership can be either a written or oral agreement in which two or more people enter to conduct business as a single entity. To help avoid a legal mess, the agreement should be made on paper.
Currently, states don’t legally mandate that business owners have a partnership agreement in place, which means that you could technically start your own business without one. However, this can spell bad news for your company if you and your partners face irreconcilable differences.
Importance of Filing a Partnership Agreement
Filing a partnership agreement is essential for entrepreneurs starting a new business, especially if they plan to take out a loan to launch their venture. The agreement should detail the day-to-day operations of the company and outline the responsibilities of each person involved with the partnership.
Without a partnership agreement in place, your business will be subject to your state’s de facto rules if an issue should arise. Rules vary widely from state to state. Profits, debts, and liabilities may not be equally distributed amongst each partner, depending on which state you operate within.
What Your Partnership Agreement Should Include
Your company’s partnership agreement should include essential information about your organization, such as:
The Type of Partnership
You and your partner can choose one of many different types of business partnerships. A few examples include general partnerships, limited partnerships, and limited liability partnerships.
Each option has a unique structure, tax implications, and protections, which is why you must specify which type of partnership you are creating upfront.
Details About the Business
Your partnership agreement must also provide details about the business. This includes basics such as the name of the company and the address from which it will operate. You’ll also be required to detail the purpose of the partnership and its start date. In addition, your agreement must list out all partners and their contributions.
Partner Liabilities & Profit Sharing
One of the most important components of a partnership agreement is the liabilities section. This portion of the agreement details which partner is responsible for any losses that occur. It also addresses how to distribute between the involved parties.
- How to add or remove partners
- Who has voting rights
- When meetings will take place
- How general management and control will work
In addition to the information discussed above, your partnership agreement must outline issues such as:
Know what you expect out of your day-to-day partnership management before you create your agreement so that all partners are on the same page.
How to Create a Business Partnership with a Loan
If you seek funds from a financial institution such as a bank or credit union, they will generate the loan documents. However, if you start a business with a limited partner and plan to borrow funds from them, you must create your own free loan agreement.
Fill out a partnership agreement template first since the party offering the loan will have some sort of vested interest in your organization, even after the debt is repaid.
The loan agreement will outline the repayment terms for the loan. It will also detail any interest or collateral that will be involved in the transaction. Finally, the loan will outline what will happen if you fail to repay the loan. All parties must sign the loan document before funds are disbursed.
You and your partner(s) will need to sign the partnership agreement, as well. This document will be legally binding and enforceable should a problem ever arise with your organization.
More Forms to Start a Business
Our site includes a variety of free legal documents, contracts, and forms. Our tools allow you to quickly generate important legal documents using a simple, fill-in-the-blank format.
When you’re creating your free partnership agreement or free loan agreement, all you need to do is follow the prompts on our document template. Our site offers customized forms for all 50 states. Once your document is complete, you can print or download it for free.