There are many business structures available in today's market. These structures can provide legal protections and business advantages. One example is a partnership.
Partnerships generally involve at least two people coming together to form a business. This type of a business structure can often benefit from a partnership agreement. These legal documents can help reduce the risk of litigation.
Partnership agreement defined
Partnership agreements are defined by Black's Law Dictionary as:
An express or implied agreement made by two or more parties, depicting their entry into a for profit business and making them official partners. The agreement depicts the nature of the business, their profit sharing ratio, the capital put up by each partner as well as their duties and responsibilities.
These agreements can be beneficial, helping business operations run smoothly.
Partnership agreement tips
The following tips can help to better ensure that a partnership agreement sets your business up for success.
- Outline the contribution and distribution expectations. The agreement should clearly state what each partner will contribute to the business. This should include financial contributions as well as time commitments. Distributions should also be addressed. Clearly state how the profits of the business will be paid between the partners.
- Define the governance structure. Include an outline for how the decision making process will be handled within the business. State which decisions are handled by which partner and which require a unanimous vote from all partners.
- Address how dispute resolution will be handled. It is not uncommon for entrepreneurs to disagree over how the business should be operated. To help ease these disputes, it is wise to have a method for handling them outlined within the partnership agreement. Two options to consider include mediation and arbitration. Although you can always take your issue to court, it is important to know that the lawsuit will likely become part of the public record.
These are just a few of many tips that can help to reduce the risk of friction within your business. It is important to note the power of the words used to craft these agreements. If the agreement is not carefully tailored to meet your needs, it could result in additional issues.
If the partnership faces a dispute, it is often wise to seek legal counsel to assist in finding a resolution. Experienced legal counsel can help you to reach a resolution or can defend your interests if the dispute escalates.