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5 clauses every partnership agreement needs

On Behalf of | Mar 10, 2023 | Business law

Business is booming, and you’d like to expand your operations – but you want to take on a partner or two before you make any more changes. You’ve already talked to the other parties involved, and everybody is amenable to your plans.

Now, you just need to get the agreements in writing. No partnership agreement is worth much until everybody signs on the dotted line. Here are some of the top things your agreement needs to address.

Ownership interests

This may be heavily tied to each partner’s capital contributions (whether that’s cash, intellectual property or something else) toward your enterprise, or they may not – but you definitely need to make sure that you specify who owns what percentage of the business.

Profit and loss allocations

The way that you divide profits and losses from the business, and how or when they are paid, may also be tied to each partner’s share of ownership. In any case, you need to make sure that each of your partner’s financial concerns are clearly addressed so they know what to expect. Your agreement should also discuss financial liabilities in case the business runs into trouble.

Spheres of responsibility

A partnership can turn complicated if everybody thinks they’re in charge of the entire operation. Your agreement should spell out each party’s sphere of control in the company, including their ability to make agreements on behalf of the company itself.

Decision-making authority

One of the quickest ways to litigation is an unclear hierarchy in a business agreement when it comes to a dispute. Disputes are bound to happen, and you need to know who will have the final say over what issues when there’s no consensus.

Termination clauses

At some point, one or more of your partners may decide to retire or move on to other projects. Any quality agreement should include a buy-sell agreement that explains how the business will be valued and has a plan for a buy-out in case of a partner’s disability, death or withdrawal.

Partnership agreements form the bedrock of your company’s structure, so make sure that you have experienced legal guidance concerning your agreements.