Key Considerations for Your Partnership Agreement

 Posted on April 26, 2023 in Business Law

A business partnership allows a company to benefit from the skills, experience, and unique perspectives of multiple people. Partnering with another person also allows you to share expenses and job responsibilities, promoting a healthier work-life balance.

However, partnerships are not without risk - especially if you do not have a solid partnership agreement in place. To give your company the best chances of long-term success and reduce the risk of conflict, make sure you have a well-written partnership agreement that includes details about decision-making authority, profits and distribution, ownership percentages, and how the partnership can be modified or dissolved.

Ownership and Capital Contributions 

Define the ownership percentages of each partner in your agreement. Each partner's share of ownership is usually proportionate to how much capital each partner has contributed (or will contribute) to the business, such as start-up costs or ongoing investments.

Management of the Partnership 

Decide who will have the authority to make decisions about day-to-day operations, major investments, and other important business decisions. It is generally wise to give each partner veto power on major decisions and to have a plan for managing disagreements between partners.

Profits and Losses 

Will a partner's share of the business profit be determined by his or her share of ownership in the company, or will each partner receive the same percentage of profits regardless of ownership? The way that business profits are distributed to partners is a crucial consideration. Without detailed information about profit and loss sharing, conflicts and disagreements are inevitable.

Decision-Making Authority in the Company

How will major decisions be made about the business? Will all partners be required to agree? How will disagreements between partners be handled? Decide in advance who will have the authority to make decisions and how a disagreement between partners will be resolved.

Dissolution of the Partnership 

No one likes to think about what would happen if the partnership does not work out, but it is essential to have a plan for dissolution in place. Your agreement should outline the conditions under which the partnership will be dissolved and stipulate how assets will be distributed to the partners. Having a dissolution plan in place helps to reduce conflict, as partners can refer back to the agreement if there is disagreement.

These are just a few of the key considerations that should be included in your partnership agreement. If you are entering into a partnership, make sure you receive personalized legal guidance from a qualified business law attorney.

Contact our DuPage County Business Formation Attorneys

At Whitacre & Stefanczuk LTD, we know that a strong partnership agreement is foundational to a successful business. Our Cook County business law attorneys can provide the help you need. Call 773-622-6100 for a free consultation.

Source:

https://www.forbes.com/sites/allbusiness/2016/10/08/7-things-every-partnership-agreement-needs-to-address/