Real-World Solutions To Real-World Challenges

Creating a partnership agreement

On Behalf of | Jun 24, 2020 | Business Formation & Planning, Commercial Law |

A partnership occurs when two or more people chose to get together for operating a business. The parties create this contract with the purpose of sharing the profits and the management of the business. Creating a partnership agreement can be tricky if either party does not know what the process entails nor what kind of agreements exist.

Partnership agreement:

The contract must first outline what are the general duties and expectations of each of the parties. The information that should be displayed in the contract is:

  • The name of the partnership
  • Purpose of the business
  • Names and addresses of the partners
  • Capital and contributions of each partner
  • Interest and ownership
  • Management
  • What to do when a partner chooses to withdrawal
  • Dissolution

What to include:

Out of the list mentioned about, it is important to highlight a few that are considered to be vital for the creation of any partnership agreement.

  • Decision-making: How will the partners make decisions? Will it be through a voting process or will one partner be solely responsible for that?
  • Capital contribution: Basically, what is addressed is how much money will each party invest in the business.
  • Salaries and distributions: It address when will the partners take money from the account and how will they use that money. Will they use it to invest or to purchase things for the business?
  • Death or disability: Partners must discuss what will happen to either one of them if they die or if they suffer a disability. What will happen to the company? What will happen to their shares?
  • Dissolution: What exit strategies are available when the partnership ceases to exist? This is possibly the most uncomfortable to talk about yet essential if one of the partners does not want to be involved in the business anymore.

Knowing this information is key to understanding the role of partnership agreements and how they can be formed to better aid the purpose of the business venture.