A business partnership can be successful if the people involved have a clear understanding of the business, their roles and duties, and what they can expect from the partnership. While most partnerships are often between two like-minded individuals, the extent of their relationship must be in writing in the form of a business partnership agreement.
What is a Business Partnership Agreement?
A business partnership agreement is a legally binding contract crafted among partners. It contains all the relevant terms and conditions of the partnership, which includes:
Percentage of Ownership
Partnership ownership can help individuals put into writing what each one can contribute to the business. They can, for one, agree to should the capital as a cash contribution to jumpstart the business. They can also provide their services, equipment, or property instead. The calculation of the percentage of ownership will depend on these contributions.
Distribution of Profits and Losses
In general, the division of profits and losses depends on each of the partner’s percentage of ownership. Businesses can also share equally in profits and damages regardless of their stake at the company. Make sure to include these terms in the agreement to avoid possible disputes. This section in your contract must also indicate when partners can withdraw their profit.
Length of Partnership
While partnerships are often created without thinking of ever dissolving, it is still a must to include the period of collaboration as a precautionary measure. There are also businesses designed to last after a few milestones. The length of the partnership must be written even if it has an unspecified time frame.
Authority Specification
Partnership agreements must define partner authority. It acts as a binding power that a company can use when dealing with loans or contractual arrangements that may expose the business to risky decisions. The agreement must state the terms on who between the partners has the authority to carry out these binding decisions.
Decision Making and Dispute Resolution
Often issues between partners stem from differences in decision-making processes. A partnership agreement can include the terms of how partners should settle disputes in decision making. For instance, they can agree to resolve an issue through a voting system. When laid out in the partnership agreement, resolution of conflicts is possible without the need for court intervention.
Termination Clause of the Partnership
A partnership is not forever. There are instances when a partner may choose to withdraw from the business. For this reason, the agreement must include a clause that details the process.
As soon as you begin a partnership with another individual, it is a must to have a partnership agreement ready. Conferring with a lawyer can help you cover all the essential details and questions that may arise during the course of the transactions and after the deal ends.
Why Do You Need a Partnership Agreement?
In general, partnership agreements are necessary to help business owners deal with a situation where there would be disagreement, confusion, or change. Here are some of the reasons why you need a partnership agreement:
To delineate roles and responsibilities. Partners have roles and responsibilities that they have to carry out to ensure a smooth flow of operations. Partnership agreements could identify who becomes the operations manager and the financial manager. This is also crucial to let the employees know who has the final say for specific company operations.
To prevent tax problems. When your business has to file for taxes, partnership agreements can show how the profits are distributed among the partners based on appropriate tax and accounting procedures for partnerships.
To address sudden changes. Partnerships are not immune to sudden changes. You have to write down all the necessary steps to carry out should the other one fall ill, die, or decide to sell his/her shares. For this reason, partnership agreements must also stipulate buy-out agreements.
To sort our partner concerns. Should you and your partner encounter any conflict, a partnership agreement can help you take the necessary steps to terminate the partnership legally.
To deal with liability and other legal issues. Partnership agreements can be a tool for each partner to spell out their responsibility, depending on the type of partnership.
To settle disputes. Should you and your partner suffer a fallout, a partnership agreement can help you handle the differences. This way, resolution becomes faster, and both you and your partner can go your separate ways amicably.
Key Takeaways
The small business landscape of Las Vegas has many organizations that follow a partnership format. To be successful and avoid conflicts, they have to have formal documentation before its establishment. Partnership agreements are useful legal documents that help business owners spell out their stake at the company and their roles and responsibilities. To make sure that you can have all bases covered, you must work with an attorney who is well-versed in partnerships to craft a comprehensive partnership agreement for your Las Vegas business.
