A business partnership agreement is a legally binding document that outlines details about business operations, ownership stake, financials and decision-making. Business partnership agreements, when coupled with other legal entity documents, could limit liability for each partner. Business partnership agreements should always be written and/or reviewed by legal counsel prior to any signatures. A business partnership agreement establishes clear rules for the operation of a business and the roles of each partner. Business partnership agreements are put in place to resolve any disputes that arise, as well as to delineate responsibilities and how profits or losses are allocated. Any business partnership in which two or more people own a stake of the company should create a business partnership agreement, as these legal documents could provide key guidance in more difficult times. A business partnership agreement is a legal document between two or more business partners that spells out the business structure, responsibilities of each partner, capital contribution, partnership property, ownership interest, decision-making conventions, the process for one business partner to sell or leave the company, and how the remaining partner or partners split profits and losses. While business partnerships seldom begin with concerns about a future partnership dispute or how to dissolve the business, these agreements can guide the process in the future, when emotions might otherwise take over. A written, legally binding agreement serves as an enforceable document, rather than just an oral agreement between partners. A business partnership agreement is a necessity because it establishes a set of agreed-upon rules and processes that the owners sign and acknowledge before problems arise. If any challenges or controversies do arise, the business partnership agreement spells out how to address those issues. A business partnership is just like a marriage: No one goes into it thinking that it’s going to fail. But if it does fail, it can be nasty. With the right agreements in place, which I’d always recommend be written by a qualified attorney, it makes any potential problems of the business partnership much more easily solved and/or legally enforceable.” In other words, a business partnership agreement protects all partners in the event things go sour. By agreeing to a clear set of rules and principles at the outset of a partnership, the partners are on a level playing field developed by consensus and backed by law. Business partnership agreements are necessarily broad, touching virtually every aspect of a business partnership from start to finish. It is important to include all foreseeable issues that could arise regarding the co-management of the business. These are some of those issues: • Ownership stake: A business partnership agreement clearly spells out who owns what percentage of the business, making each partner’s stake in the company clear. • Liability: If the business partnership is set up as an LLC, the agreement should limit the liability each partner faces. To do so effectively, a partnership agreement should be paired with other documents, such as articles of incorporation. A business partnership agreement alone is likely not enough to fully protect the partners from liability. Steps To Implement A Business Partnership AgreementA business partnership agreement does not have to be set in stone, especially as a business grows and develops over time. There will come opportunities to implement new elements of a partnership agreement, especially if unforeseen circumstances occur. • Allocations – profits and losses: Partnerships are formed with the expectation of making a profit. The partnership agreement should speak to the when and how profits are allocated to each eligible partner. In addition, it should speak to how losses will be distributed during the business’ operation and in the event of dissolution. Why Your Business Partnership Needs a Written Agreement• To set up the roles and responsibilities of each partner and to describe how decisions are made. Who is the managing partner? What are the responsibilities of individually named partners? How do roles and responsibilities change? Why You Need an Attorney to Help Prepare a Business Partnership AgreementThe only disadvantage to having a partnership agreement is that you might have language that is unclear or incomplete. A DIY partnership agreement risks not getting the wording right, and a poorly worded contract is worse than none at all. Getting an attorney to help you with the process of preparing your partnership agreement seems like it’s an expensive waste of time. It’s not. Remember, if it isn’t in writing, it doesn’t exist, so putting every possible situation or contingency into a partnership agreement can prevent expensive and time-wasting lawsuits and hard feelings between the partners. • To deal with partner issues, like a conflict of interest and non-compete agreements. Free Initial Consultation with LawyerIt’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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