Pitfalls That You Avoid When You Use a Partnership Agreement in Mississippi
At the end of the day, you want to know that the business you are creating, whether with friends or family, is built on a strong foundation, and that it will not be shaken or broken by squabbles among or between the other parties to the partnership. But even when you are getting into the partnership with the best of intentions, there are events that may end up breaking or threatening the existence of the partnership.
To prevent the worst from happening, we recommend creating a partnership agreement and signing it. As long as it’s in written form and signed, the agreement will be legally binding and enforceable, and the best bit is that you don’t have to get the document notarized.
The state of Mississippi might not require the partnership agreement as one of the registration documents submitted to the Secretary of State, but we recommend it because it facilitates the organization of the internal affairs of your partnership.
Remember that the partnership agreement (also a partnership contract, article of partnership, or a business/ general partnership agreement) is the legal contract that’s entered by the parties to the partnership. This contract often lays down:
The roles of the partners with regards to the daily operations of the business
The rights, roles/ duties, and the authority of the partners
The relationships between and among the partners
Think of the partnership agreement in Mississippi as the document created to ensure that every partner has a clear understanding of their obligations and responsibilities to the partnership and to each other.
With this in mind, we’ve curated professional and free Mississippi partnership agreement forms to kick start the process for you. Our legal partnership agreement sample is state-specific, and it bears all the essential sections that you need to specify for the smooth running of your partnership and the business.
Using out a general partnership agreement, here are some of the pitfalls you will avoid.
You will share in the business expenses and the capital
Often, partners share in their capital contributions, but the partnership contracts hardly ever specify how the partners will be sharing in the business expenses. The problem with this is that when you are the partner contributing more of your capital, whether money, information, property, or any other resources, you will end up giving away your enterprise-ability. You don’t want to lose that, which is why you must institute an associative arrangement to specify the sharing of expenses to ensure fairness, cohesion, and, most importantly, to make it easier for you to walk away should things fall apart. Remember that if you keep giving, they will always take, especially if they are of questionable integrity.
You will have the liability of each partner clearly marked out
Thanks to the partnership agreement, the obligations of the limited and the general partners will be outlined. One of the biggest benefits of this clarification is that the limited partners will not, in any way, be liable for the obligations or the actions of the general partners. So, if a general partner takes a debt in the name of the partnership or on behalf of the partners, they may end up paying the debt since their liability is not limited to their capital contributions to the partnership.
A partnership without an exit strategy
You must have an out. Regardless of the partnership you get into, you need to make sure that you have an out. In this case, your partnership agreement must come with important elements covering how you (and other partners) will leave the partnership legally. Most importantly, you need to make sure that the agreement has no loopholes when it comes to assets and capital redistribution during exit. So, just like a prenup for marriages, make sure that the business partnership contract you are signing comes with fair terms of exit. Ask if a partner can walk away from the partnership and how.
The exit strategies are also expected to cover subjects like partner buyouts or onboarding steps for new partners.
Clarity of ownership rights
All businesses, partnerships included, have bosses. Therefore, even if you enter a partnership after making equal capital contributions, the partnership’s ownership is never on a 50-50 basis. In the partnership contract, we recommend that you settle on a reasonable split. This could be a 70/30 or a 60/40 split. Whatever you settle on, be on board with it 100%.
The 50-50 strategy is something you shouldn’t have in mind going into the partnership because every business needs its point person for operational control and overall accountability.
While on this, you need to keep the exit/ buyout strategies clear/ in your favor, especially if you own a bigger stake of the business.
Finally, make sure that you only sign the partnership agreement if you all share the same vision for the business partnership.
Ready to create your partnership agreement in Tupelo, Biloxi, Jackson, Hattiesburg, Laurel, Oxford, Meridian, or any other city in Mississippi? Download our free partnership agreement forms here to get started.