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What is a partnership agreement?
Prepare and protect your business with a legally binding contract.
So you’ve brainstormed a business idea and found the perfect partner to work with. Now what?
The first step is organizing a partnership agreement so you both know exactly where you stand. Here’s exactly what to include in your agreement and how to find a free template to make it an easy-breezy process.
What is a partnership agreement?
A partnership agreement is a legally binding contract between two or more parties who would like to work together to operate a business in order to generate profit. It sets out the responsibilities, duties and obligations of each partner, and ensures each party’s interests are recognized and protected.
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When should I use a partnership agreement?
Partnership agreements should be written and signed at the beginning of a business venture. It will spell out the responsibilities of each partner and ensure that all owners share a common vision for the business. These agreements should be put in place as early as possible to avoid any future disputes.
What does a partnership agreement include?
Partnership agreements can turn out to be lengthy documents as they are essentially setting out the foundations for your business. Typically, a partnership agreement should address the following:
- Name of your partnership
- Contributions to the partnership and percentage of ownership
- Division of profits, losses and draws
- Partners’ authority
- Decision-making roles
- Salaries and distributions
- Withdrawal, disability or death of a partner
- Business dissolution
How do I write a partnership agreement?
A partnership agreement must include clauses that cover all areas of the business, from the day-to-day running of the business to how a partner goes about leaving the business in the future. To write an agreement that all business partners agree to, you must all sit down together and agree on certain terms and conditions to be included in the document. It’s best to refer to a legal template for the ins and outs of the document to give you an idea of what to include in your partnership agreement.
Do I need a lawyer to write my partnership agreement?
Lawyers are technically not required to write up a partnership agreement, but consulting one can be helpful. Using a lawyer to help you draft your document will make sure it remains within the law as well as creating a comprehensive agreement for the business.
Also, a business lawyer can ensure everyone’s investment in the partnership and business is protected. If you’d rather write the document yourself, make sure you use a legal template that has been drafted with your specific state laws in mind.
How effective is a partnership agreement?
Partnership agreements are legally binding between the partners of a business. They are created to deal with any sort of situation that might cause confusion, disagreement or change. A well-planned agreement drafted at the beginning of a partnership is critical to smooth business operations.
Partnership agreements can help to do the following:
- Define each partner’s roles and responsibilities
- Simplify tax issues
- Avoid legal and liability issues
- Help deal with changes in the business
- Handle conflicts of interest and disputes
- Make dissolution easier
Partnership agreement vs. joint venture agreement
A partnership agreement protects the interests of all partners involved and provides guidance to moderate any disputes that the company may face in the future. Though a Joint Venture Agreement may seem similar to a partnership agreement, they are quite different things when it comes down to legalities. Here are a few key differences:
- A joint venture can be made up of individuals, corporations, governments and businesses, whereas a partnership is usually individuals.
- A joint venture usually comes into fruition to accomplish a specific purpose, whereas a partnership is not limited to a single goal, but geared towards running a long-term business.
- Joint ventures don’t always have to have an agreement in place. If they do, the Joint Venture Agreement is usually a short-term contract that addresses the specific need of a certain goal. A partnership agreement covers a much more long-term and broad spectrum of topics concerning the business.
- A joint venture is a short-term project, whereas a partnership is designed to last, hopefully, for the lifetime of a business.
- Joint ventures have a limit to what they can achieve, which is dependent on the agreement. Partnerships, on the other hand, are generally unlimited in what they can achieve.
- If something goes wrong in a joint venture, both parties are accused of being at fault, whereas in a partnership usually only the offending party is faced with the fault.
Bottom line
Partnership agreements can be upwards of 15 pages, which is why using a legal template can be extremely useful. It’ll make sure that nothing is left unwritten and all the legal jargon is there ready for you. Consider an online legal service that allows you to view or download a partnership agreement template for free.
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