Sample South Dakota Partnership Agreement
Partnership Agreement in South Dakota – Mistakes to Avoid When Creating a Partnership
Some of the biggest business corporations that we wish to emulate started out as partnership businesses, which is why partnerships are among the most attractive business structures out there. Unfortunately, not all partnerships that start out well end successfully. Often, the reason for failure stems from the absence of some structures being put in place. Thankfully, this is a risk that you can avoid with ease, if only you follow specific guidelines. Even better, you could reduce the risk of failure by creating a partnership agreement.
A partnership agreement refers to the legally binding instrument that outlines the rules and the responsibilities of the partners, as well as the roles and the relationships of the partners. Also called a partnership contract, a business partnership agreement or a general partnership agreement, the agreement for business partnerships would ensure the smooth running of the business, by offering guidance regarding for the business, while also ensuring that conflicts are resolved effortlessly.
To help you get started on the right path, we recommend getting started with our South Dakota partnership agreement form. The partnership agreement in South Dakota created through the use of the partnership agreement form would ensure that you have all the essential elements needed to ensure the smooth operation of your business.
That said, here are some of the mistakes you might want to avoid to ensure the success of your partnership business.
Failure to create a written/ signed partnership agreement
To ensure the success of your partnership business, you need to create a legally binding document outlining the rules and the responsibilities of the partners, as well as the relationships and the rules between the partners and the partnership. This written document offers specific guidance for the business. Some of the important aspects of the partnership business include:
Capital contributions- One of the most important elements of the partnership contract is clearly outlining the capital contributions of the partners. Here, you need to specify the capital contributions of the partners against their names, as well as the preferred option for the distribution of profits and losses. This section also features financial details of the partnership; for example, the bank account and the names of the partners allowed to withdraw or make deposits on behalf of the other partners.
Partner Authority - This part of the agreement is important as it specifies the roles of the partners as well as the authority held by each partner and what you can do. This section also specifies the limitations to a partner’s authority and control.
Dispute resolution - the other important aspect of the partnership agreement specifies how the partners would resolve disputes, and when mediation/ arbitration would be necessary.
The other important clauses in the written agreement include the clauses that cover exit strategies, termination of partnership, buyouts, and partner involvement/ competition.
Partnering with the wrong people
The other big mistake the partnerships make stems from the partners offering partnership deals to partners, just because the prospective partner has a specific set of skills that would be beneficial to the business. Generally, you need to avoid making this mistake, as tempting as it is because there will be issues down the line regarding ownership, responsibilities, and the profits contributions, among others. The best thing you can do when you find someone with highly sought skills is to hire them as professionals/ consultants or specify how their skills would be valued if they choose to be partners in your business.
Mistakes Around Capital and Expenses Distribution
One of the biggest mistakes made by partners and partnerships is instituting rules which guide in the sharing of capital and expenses. The reason for this is that by sharing money, information, property, or resources you share/ give away part of your enterprise-ability. While you’d expect people to reciprocate your contributions, we live in an imperfect world, and this means that you may end up losing your control in the partnership or feel short-changed, especially if the business expenses are shared equally, despite and the inequity in the capital contributions. To ensure that this inequity doesn’t happen, you may want to include an associative arrangement in the partnership agreement. Doing this ensures the successful running of your business.
Absence of an Exit Strategy
The other mistake you could make, one you wish to avoid is working without an exit strategy. At the end of the day, the partnership will come to its natural death (or an unnatural one for that matter), and when the time comes, you need to be ready to prevent issues. For instance, you need to specify the steps for dissolving the partnership, buyout procedures, shares distribution, and the termination of a partner’s rights.
The good news is that you could avoid all these mistakes and set your business by creating a partnership agreement.
To get started and to create the partnership agreement that’s best for your business, get our partnership agreement forms accessible from Pierre, Aberdeen, Sioux Falls, Rapid City, Watertown, and all the other cities in South Dakota.
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