Important Questions to be Answered by Your Partnership Agreement in New Mexico
A handshake could be a sign of camaraderie, and it could be an excellent start for your business partnership, but it is never a smart move. Handshakes and verbal agreements could be the most common approach taken by humans when getting into contracts or agreeing to something, but at the end of the day, the absence of a written document to act as proof of the agreement could be the death of the business. Verbal agreements, unless recorded digitally and time-stamped, are also not as effective.
So, if you and your friend(s) or family have agreed to form a business partnership, you need to make sure that you sign an agreement. The agreement signed must specify the terms of the partnership, including the duration during which the partnership will be operational, the goal/ vision of the partnership, and other important aspects. Essentially, the partnership agreement is the legally binding agreement between partners, an agreement that specifies the roles, responsibilities, rights, and relationships between the partners. This agreement doesn’t need notarization, and it’s enforceable, as soon as the parties to the partnership sign it — this agreement. Once signed, the parties to the contract are bound to its terms, for as long as the partnership is in business.
Besides being legally enforceable, the partnership agreement ensures that misunderstandings and disagreements are resolved as soon as possible and in the most professional way, without impacting the operations of the partnership, at least not for a long time. A written partnership contract formalizes your business ventures, saving you the grief that would hit later because you overlooked the need for one clause or the other or failed to sign the agreement altogether.
If this document sounds like something you need, you will be happy to note that it’s quite easy to create a binding partnership agreement in New Mexico. And with our help, you will be able to create one with ease and at no extra cost. Our free New Mexico partnership agreement form is essentially a sample partnership agreement that’s editable, printable, and downloadable. Using our legal partnership agreement template as a guide, you should be able to come up with a legally binding agreement that covers all the bases regarding business partnerships.
But even with the business partnership contract template, you need a checklist when formulating the terms of your contract. To help you get started, here is a set of questions that you need to answer when coming up with your business partnership agreement in New Mexico.
Important Questions Answered by Your Partnership Agreement
What’s each partner’s financial contribution?
Round-table discussions often leave the participants of the discussions happy because, somehow, the time spent at the meeting has got all the issues cleared out. If you had those discussions over drinks, you would go home happy. But as we all know, we make the most unrealistic and the most generous decisions when inebriated. And with the fluidity and the unreliability of memory, you need to make sure that whatever is agreed upon is written down and signed. We also recommend making these decisions when sober.
This section of the agreement ensures that the capital contributions made (or to be made) by each partner is written down so that you have a reference in the event of a disagreement. Remember that money fuels most disputes, and you don’t want a situation where it appears as if some partners are putting in less effort, especially after making rather small capital contributions. Also, financial contributions play a part in determining the ownership stake of each partner, which means that you should never overlook this section of your partnership agreement.
How involved are the partners?
The partnership contract must also address the aspect of partner activities and roles; otherwise, the partners will find themselves in situations where they are always stepping on each other’s toes. Naming the managing partner and specifying their roles and responsibilities is one of the important areas to be specified.
What is regarded as income in the business partnership?
While hoping for profits from the partnership, you also need to agree on how the partners will be drawing from the profits – will you draw the profit as salaries, and if so, how much is the acceptable draw, and most importantly, how often will the partners draw their share of the profits? Also, how much of the profit is to be plowed back to the business.
Which property should be added to the partnership?
If a partner brings the property into the partnership business, the contract should stipulate how the property will be itemized and valued. This affects tangible and intangible property. The partnership contract should also address how individuals will use the partnership property if they are allowed to.
How are the bank accounts set up?
The bank accounts’ set up often affects the accounting and tax aspects of the partnership, and these are also tied down to the type of partnership structure you settle on. Ensure that the agreement lays out the specifics regarding the setup of the bank accounts and the best accounting methods to be used.
How will disputes be resolved?
Sit-downs are great, but you may not be able to resolve those disputes after one, three, or ten meetings, which is why we recommend that the incorporation of a dispute resolution clause. Essentially, the agreement should offer the best responses to how you will handle/ resolve conflict professionally. We recommend having a mediation clause.
Are there exit strategies?
Exit strategies ensure the continuity of partnerships or the amicable dissolution of the partnerships. Therefore, your agreement must provide answers/ solutions for exiting the partnership. It should lay out buyout procedures, the sale of a partner’s interest, as well as the process of bringing in a new partner.
At the end of the day, the partnership agreement is a crucial part of your partnership business. So, make sure it has all the important questions answered.
To create a partnership agreement in Roswell, Albuquerque, Santa Fe, Las Cruces, Taos, Farmington, or any other city in New Mexico, download our free partnership agreement form here to get started.