Whether your business partner is a stranger or a lifelong friend, it is essential to have a written partnership agreement. A partnership agreement serves as a tool for dealing with disagreements and unforeseen problems. It clearly outlines all rights and responsibilities. You can identify and eliminate a wide range of potential problems before your business even starts if you have the right documentation.
Determining the Share of Profits and More
The share of profits that each partner takes should be outlined in a partnership agreement. An important issue that a partnership agreement should address is determining whether or not each partner gets a regular draw. Considerable time should be invested to the part of the agreement that outlines how money is to be distributed, as this is an area where a lot of conflict occurs.
Other issues that should be addressed in a partnership agreement are who is contributing cash and services in order to get the business operational, and the percentage that each partner receives should be clearly indication.
Potential Problem Areas Should Be Outlined In Partnership Agreements
Another problem area is in the realm of who makes business decisions. Here are a few of the types of questions that must be answered:
- How are business decisions made? Are they made by a unanimous vote or a majority vote?
- Who will be handling managerial work?
- What changes will occur in the event of a death?
- If a conflict cannot be resolved within the framework of your partnership agreement, at what stage would you have to go to court?
You might just want to get your business running as soon as possible, but not addressing these issues in the beginning could spell disaster down the road.
Uniform Partnership Act
One option to consider, which is offered in all states except Louisiana, is the Uniform Partnership Act or UPA. The UPA covers all the legal regulations that specifically apply to partnerships.
A Partnership Agreement Can Reduce Conflict
No matter how exciting the process of forming a partnership can be, it is important to keep in mind that it is still a business. A new business faces an array of challenges, and the last thing any new business needs is internal disruption. A partnership agreement is an easy and logical way to reduce internal conflict within the business so that you can stay focused on building the business and making money!