5 Key Elements in a Partnership Agreement

A partnership agreement is a legal document that outlines how a business will be run. This document is used by small for-profit businesses when two or more people are involved. The agreement is an essential document to have, especially in the case when a dispute arises between partners. You should have this document in place, even if you have gone into business with a friend or relative. This will make sure everyone is protected.

Here are some of the key elements that should be in this document.

The Basics

Your partnership agreement should include the basics, such as the name of the business and the names of key parties involved, the description of the business, and contact information for the business and owners. Include capital contributions (money, assets property, etc.) that each partner provided. Provide the specific percentage of the company that each partner owns. You will need to outline the goals of your partnership and how long it will last.

Rules and Responsibilities

When you create your partnership agreement, you will want to make sure it offers a lot of clarity on everyone’s responsibilities. The partnership agreement clearly establishes personal responsibilities for each partner in terms of capital, profits, losses, and liabilities in addition to business management and oversight. Delineate individual responsibilities in addition to explaining decision-making and voting between partners. Think through what concerns or disagreements could arise and then outline how you would solve them.

Financial Issues

Cover everything involving finances in your agreement. Explain the percentage of the profit and loss assigned to each partner and how the company will distribute revenue. Include the accounting obligations of the partners and how you will handle salaries, vacation, sick leave, etc. 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. Create specific guidelines for adding new partners, removing partners who want to leave, and removing partners who don’t want to leave. Decide who is in charge of managing your staff. Establish what kind of authority role each partner has.

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? Describe how you will liquidate the business and share out any profits should the company dissolve. Assign a partnership representative to manage all tax communications. Provide clear instructions for how each partner’s ownership in the company should be liquidated or redistributed in the unlikely event of their death or disability.

When you complete your partnership agreement, you should feed confident in the core structure of your business and it’s ability to function smoothly.

You will want to avoid doing this on your own and instead work with an experienced attorney. Contract lawyers are a good course of action for establishing an effective partnership agreement. They will know what is necessary to include for your state and industry. They can help ensure that you have thought of and described every possible scenario and element for your business for the smoothest management experience. Your M&A advisor will be able to recommend a lawyer who has experience crafting partnership agreements.



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