When two or more people intend to do business together for a profit, they form a partnership. They agree to build and nurture a company. Although they have a desire to grow a successful business together, there may be bumps along the road. Many partners face challenges running their company when they don’t have a crystal clear vision as to how it will function. A partnership agreement helps the partners establish an understanding of each person’s roles and responsibilities. Here is a list of five important items that a partnership agreement should contain:
1. Contributions
The partnership agreement should clearly and concisely list what each partner will contribute to the business. It should contain the amount of money, time and effort, equipment, or other resources given to the business. Also, the partnership agreement should provide the percentage of ownership interest each party has.
2. Distributions
The partnership agreement should indicate how the partners will divide the profit from the business. The partners should decide whether the distributions are in relation to each party’s ownership interest. Also, the partnership agreement should explain whether the partners will take a salary. If they decide to take one, they should determine when they should get paid, and how much they should receive.
3. Partnership Management
The partnership agreement should explain the roles and responsibilities of each partner. It should identify who will perform certain key tasks, such as, marketing, sales, paying bills, supervising employees, etc. When each partner understands his roles in the beginning, it helps the business operate more efficiently. Also, when each party knows his responsibilities, it may help alleviate confusion later down the road.
4. Dispute Resolution
The partnership agreement should address how disputes between partners are handled. It’s hard to imagine that there won’t be any disagreements between parties. Most times partners can resolve disputes, and then move on to the next issue. Occasionally, the parties will not see eye to eye. Thus, the partnership agreement should discuss how the partners should come to a resolution.
5. Dissolution
The partnership agreement should provide the necessary steps for terminating the business, and indicate if all partners must consent to the dissolution.
In conclusion, a partnership agreement helps all of the partners have an understanding of their roles and responsibilities. Although there are many items to include in the partnership agreement, some of the important ones are contributions, distributions, partnership management, dispute resolution and dissolution.
