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Blog
Home Buyer Articles What is a Partnership Agreement?
Buyer ArticlesSeller Articles

What is a Partnership Agreement?

Deal Studio February 22, 2023 0 Comments
Business Partnership Meeting Concept. Image Business Women Hands

A partnership agreement is a legal document that provides an outline of how a business will be run. This agreement will often be used by small for-profit businesses when two or more people are involved. It’s an essential document to have, especially in the case when a dispute arises between partners. Even if you have gone into business with a friend or relative, you should have this document in place to make sure everyone is protected. Let’s take a look at some of the key elements that should be in this document. 

The Basics

It goes without saying that your partnership agreement should include the basics, such as the name of the business and the names of key parties involved.  You’ll also want to outline the goals of your partnership and how long it will last. 

Rules and Responsibilities 

When you create your partnership agreement, you’ll want to make sure it offers a lot of clarity on different points with an eye to everyone’s responsibilities. Think through what concerns or disagreements could possibly arise and then outline how you would solve them. 

Financial Issues

You’ll want to cover everything involving finances in your agreement. This should include key points on income and how it will be distributed. You will also want to clearly outline the ownership interests of each partner involved. Also be sure that the agreement includes the accounting obligations of the partners, and how you’ll handle salaries, vacation, sick leave, etc. Also think about the funds that will be necessary to operate the business. Who will be contributing these funds?

Partners and Staff

The partnership agreement should also cover points involving the work itself. Who is in charge of managing your staff? What kind of authority role does each partner have? What if you decide to bring in a new partner? The agreement should discuss the procedure for adding people to your partnership and what that entails. 

Issues Involving Key Decisions

Another important issue to explore and detail in the agreement relates to decision making. How will your company make its business decisions? What will occur if a conflict cannot be resolved? Will you go to court or take another route? What if the partnership was terminated? What would the terms and conditions of your termination be? 

When your partnership agreement is under your belt, it should empower you to feel confident in the core structure of your business and its ability to function smoothly. 

Obviously, you’ll want to avoid the DIY approach and instead work with an experienced attorney. While it might take more time and money to do so, you’ll be glad that you hired a professional if and when you run into conflicts down the line. Your business broker or M&A advisor should be able to recommend a lawyer who has experience crafting partnership agreements. 

Copyright: Business Brokerage Press, Inc.

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