Set terms, secure investments, transfer partnerships via partnership agreements
It is a contract between partners in a partnership. It sets out the terms and conditions of the relationship between the partners.
- Percentages of ownership and distribution of profits and losses
- Description of management powers and duties of each partner
- Term (length) of the partnership
- Termination of partnership
- How a partner can buy his/her share of the partnership.
A partnership agreement should prepare upon starting a partnership. An attorney should help you with the partnership agreement. This makes sure you include all important questions, avoid problems when the partnership ends.
Why is a Partnership Agreement Important?
Your attorney will tell you that it’s important to have a partnership agreement. Believe it. , A partnership agreement is set in place to deal with situations where there is confusion. Here’s why every partnership should have an agreement, right from the beginning:
- To set up the roles and responsibilities of each partner and to describe decision making. Who is managing partner? What are the responsibilities of named partners? How do roles and responsibilities change?
- To avoid tax issues by having the tax status of the partnership spelled out. And to show that the partnership is distributing profits based on acceptable tax and accounting practices.
- To avoid legal and liability issues, spelling out the liability of individual partners. And the liability of all partners if there is a liability issue with one partner.
- To deal with changes in the partnership due to life challenges of existing partners. for an example: partners who leave, become ill or incompetent, get divorced, or die. These are usually dealt with in buy out agreements with each partner.
- To describe the circumstances under which new partners can enter the partnership.
- To deal with partner issues, like a conflict of interest and non compete agreements. To override state laws. Some states have required language in partnership agreements. But this language may not be the best for your particular partnership. If you don’t have a formal written agreement, you may find yourself
- To make disputes easier. You should include language in your partnership agreement describing handling disputes. Will arbitration be a possibility? What will be the responsibility of parties to the dispute? Who pays for what?
Why help from an Attorney?
The only disadvantage of having a partnership agreement is having an unclear language. A partnership agreement made by an unprofessional risk not getting the wording right. And a poorly worded contract is worse than none at all.
Getting an attorney to help prepare your partnership agreement seems like it’s an expensive waste of time. But it’s not.
If it isn’t in writing, it doesn’t exist. So putting every possible situation or contingency into a partnership agreement can prevent expensive and time-wasting lawsuits. And hard feelings between the partners.