What should you put in a partnership agreement?

On Behalf of | Jul 25, 2023 | Business Law |

A partnership agreement is an important document when starting a business with someone else. In many cases, business owners are tempted to use a handshake agreement and not put anything official in place. But it is much better to have official documentation to lower the odds of a dispute and to help the company operate smoothly.

But what should go in that agreement? There are many different areas that need to be considered, including the following.

Financial decisions

For one thing, the agreement can spell out some of the financial decisions in advance. How are you going to split up the profits, for instance? What will you do with any losses or debt?

Ownership percentages

Similarly, the partnership agreement can stipulate what percentage of the business each person owns. Even if it’s being split 50/50, it’s still important to have this in writing to ensure that everyone is on the same page.

Roles and duties

A partnership agreement may also specify what each person is expected to do at the business. What is their role within the company? What decision-making power do they have?

Dispute resolution

Finally, it is important to consider how disputes will be resolved if they do arise. Having a partnership agreement makes a dispute less likely because it addresses some common issues and events – such as dividing profits – but it can also be used to set up a resolution process for a dispute that occurs anyway.

If you are starting a business and creating a partnership agreement, be sure you know exactly what legal steps you need to take.

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