MBT | McKay, Burton & Thurman, P.C. | Attorneys At Law

What should be included in a partnership agreement?

On Behalf of | Sep 13, 2023 | Business Law

When two aspiring business owners decide to work together, they can benefit from crafting a partnership agreement. It’s best to have a written contract to refer to in the future, which can help to avoid disputes and clarify key rights and responsibilities that can be referred to with ease throughout the duration of the partnership.

What should be included in that partnership agreement? Every business is unique, so there will be different factors to consider. However, these are some of the most likely important concerns that will need to be addressed in one way or another.

How long it will last

In some cases, business owners may not have an end date in mind. In other cases, they may decide to work together for five years or 10 years. If the partnership is going to have an expiration date, it’s good to define it upfront.

Ownership percentages

Another area to consider is the percentage of the business that is owned by each person. Even if it is as simple as giving 50% ownership to each, it’s best not to assume anything. Getting it in writing certainly helps to safeguard each party’s interests, especially in a situation where one person eventually wants to sell the company or have their percentage bought out.

Duties and responsibilities

Business owners may have different duties and responsibilities, and they may want to define exactly what they are supposed to do within the company. This is an area where conflicts sometimes arise, when both people think that they have certain authority or concerns that the other isn’t pulling their weight. Clearly dividing roles can help individuals to avoid such disputes.

Dispute resolution tactics

Speaking of disputes, it is important to acknowledge that they do happen from time to time. This doesn’t mean that each disagreement will spell the end for the business or the partnership. But it is often easiest to work through a dispute if some of the resolution tactics that will be utilized have been spelled out in advance.

Financial considerations

Finally, the agreement should mention different aspects of the financial picture. How much will each business partner be expected to invest? How much will they earn and how should they get paid? Will they get an hourly wage or take a salary?

A partnership agreement can help to create the ownership and managerial structure for a new company so that things go smoothly. It’s important for business owners to know exactly what legal steps to take when safeguarding their interests at the start of a new venture.