Whether your business is currently set up as a partnership, or you are considering establishing this kind of structure, you are well advised to write a partnership agreement. You may not think it’s important, but without drawing up an agreement of your own, you will be subject to the default rules set forth under the Uniform Partnership Act or the Revised Uniform Partnership Act. These regulations will become the controlling laws for your business unless you have a customized partnership agreement already in place.
Get Everyone on the Same Page
When you and your partners sit down to write a partnership agreement, you can paint a clear picture of the business relationship you will have to one another. The agreement should include, among other points, information such as the partners’ rights and responsibilities, how business profits should be divided, the process to follow when a partner dies or leaves the company and how major decisions are to be made.
Include the Basics
What you write into your agreement depends on the type of business you have and the specific needs you and your partners feel should be addressed. Certain basic items, however, should be included:
- Partnership name: Some partnerships take the name of their partners, such as “Jones, Smythe & VanHorn.” Others prefer a fictitious name, such as “JSV Bookkeeping Services,” which must be registered. Check first to make sure the name has not been taken by another company.
- Partner contributions: Specify what each partner will bring to the company in terms of funding or expertise, and what ownership percentage each will have.
- Allocation of profits, losses and draws: Explain how profits and losses should be distributed. One method is to allocate both according to ownership percentage. Decide also how draws, a portion of each partner’s profits, should be handled.
- Partner powers: First, spell out the meaning of a major business decision versus a minor decision. Next, curb the power of each partner by requiring a vote among all on important issues. You can add that each partner can make minor business decisions without consent from the others. You should also include a sentence or two ensuring that no partner can indebt the partnership without the other partners being in agreement.
- Daily management: This speaks not to small, everyday business tasks but to more complex undertakings. For example, you may want to indicate who will be in charge of bookkeeping for the corporation, who will handle new business development and so on.
- Incoming and outgoing partners: It is a good idea to describe the process of bringing a new partner on board. You should have another process for handling the death or resignation of an existing partner. Although both of these situations would likely occur later on in the life of the business, having some guidelines already in place would be very helpful.
- Resolving disputes: Establishing parameters for settling disputes among partners will be key, because thorny issues will most certainly surface from time to time. Explaining how you intend to deal with deadlocked disputes may keep you out of court and save you money. For example, in your partnership agreement you can require that arbitration or mediation be used before allowing partners to take their grievances to court.
Go for the Personal Touch
In their haste to get the partnership up and running, some people tend to feel that setting up under whatever default rules their state provides is a good way to go. While that may indeed seem like the easiest solution, the truth is that controlling rules and regulations will be more a hindrance than a help for your business. Go instead with the customized, personalized approach and write your own partnership agreement. Spend a little more time in organization at the beginning of your journey to enjoy greater rewards down the road.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.