Securing a partnership agreement is important in every business venture with a partner. Get to know how to secure a partnership agreement.
Securing a partnership agreement is a bit like getting a prenup agreed - but in the business world. It is an essential, albeit sometimes unglamorous, step in starting a business venture with a partner. Drawing one up should be the first thing that any business run by a partnership does. It will stop any doubling up of work or any tasks falling through the cracks from the very start. Given its importance, knowing exactly what it is and what it should detail is key. In doing so, a partnership agreement, like all contracts, can become the asset that it should be through enhancing the trust you and your partners have.
While we would always recommend using our software to draw up a partnership agreement, this guide to partnership agreements is more than that. For, we explore what one exactly is, detail how to secure one, and outline how one can be created.
A partnership agreement is a legal document that details a partnership’s business relationship. It outlines how much each individual owns of the partnership or business and, therefore, profits or losses are then distributed in accordance to that level of ownership.
The agreement also needs to delineate what each partner is meant to do and what they are responsible for. This needs to be clear so that there is no room for misunderstanding further down the line of a person’s role or responsibilities. For example, if you simply assume that your partner will do certain tasks, this can start to cause issues between you. Writing it all down in a partnership agreement will help stop that from occurring.
Additionally, the partnership agreement needs to stipulate a number of criteria when it comes to the dissolution of the partnership. For that reason, it is good to outline how long the partnership should last, but also how it can be dissolved too. Partnerships dissolving are not necessarily negative and are, in fact, a common and necessary occurrence. The implementation of an effective partnership agreement can make the dissolution a smooth running and productive task. For that reason, it is also important to set out how a partner can sell their part of the business in a partnership agreement.
In short, anyone going into a partnership business with a person should have a partnership agreement in place. A partnership is a business run by two or more people that makes profits. Even if the partnership is between two spouses or family members, a partnership agreement is still needed. Remember: a partnership agreement helps legally protect all involved.
That legal protection, however, comes about for a couple of different reasons. As, while, setting out roles and responsibilities allows everyone to know where they stand and what is required of them, it helps partnerships avoid any financial issues. Partnerships have to distribute profits in accordance with the relevant country’s tax and accounting laws. Plus, in some countries, by having a limited liability partnership agreement in place, each individual can be protected should those tax and accounting laws be flouted by a specific individual. An extension of this idea is also that a partnership agreement helps limit liability to other aspects of the business too. I.e, if your partner did something illegal, your partnership agreement will outline whether any subsequent legal proceedings can be aimed at you or just them.
It is all well and good knowing why and when you need a partnership agreement, but how do you go about writing one? Due to the legalities involved, it can be highly beneficial as well as prudent to seek the advice of a legal professional. In fact, it is often recommended that all potential partners have their own independent legal counsel so that they are fairly represented in the creation of a partnership agreement. If you try to cut costs by using just one lawyer, you run the risk that the partnership agreement unfairly benefits one partner over another.
Of course, a good alternative is to use a template from a reputable source like Contractbook which can help you cut costs while ensuring that all relevant parties have their needs met. Contractbook’s template library has a wealth of contract templates that have been approved by industry professionals, so you know that your agreement has solid legal standing. Plus, not only will this help you cut legal costs, it can help minimize the time it takes to complete the partnership too, given that the template is there ready. Having a lawyer draft one from scratch is time consuming as well as costly.
Starting a business partnership is an exciting time. The prospect of creating a successful venture can sometimes mean that some necessary basics are overlooked. Make sure that you do not get carried away and ensure that something like a business partnership agreement is signed before any money is invested, or any deals are made. Doing so will help protect all involved and can also result in a far more productive partnership in the long term. It means from the outset any one involved does what is required of them as they are fully informed of what their position in the company is.
Importantly, a business partnership agreement will also protect you financially in terms of how to leave the partnership should you want to or if any liability is laid at your door. It may sound like a boring piece of administration to complete, but you will wish you had taken the time to complete one should anything go wrong in the partnership in the future. Plus, with Contractbook, it should not be an onerous task. Our software helps to simplify the process through digitization, making it much more efficient in producing more effective results.