4 elements of a solid partnership agreement

| Nov 14, 2019 | Business Law

Starting a business with a partner can be a good way to share responsibilities with someone and expand the expertise of leadership. Whether you work with someone you know on a personal level or in a professional capacity, the relationship you create through a partnership can define the future of your business.

As such, you should have a partnership agreement that sets you up for success by containing the following elements.

It exists in writing

One of the biggest mistakes people make when forming a partnership is operating without a formal, written agreement. This can be especially common among partners who are family members or friends and assume an informal or verbal agreement will suffice.

However, putting an agreement in writing is crucial, even (or especially) when parties have a personal relationship with each other. 

It is specific

Your partnership agreement should be clear and specific. Parties should detail their exact roles and responsibilities. Other details that should be in your agreement include: 

  • Duration of the agreement
  • Allocation of profits and losses
  • Restrictions on partnership behaviors
  • Breakdown of decision-making authority 

It provides guidance

An effective agreement does more than document what is; it also addresses what could be.

In other words, agreements can provide direction on what happens if a partner passes away or wants to leave the business, as well as how partners will attempt to resolve disputes that may arise.

It is enforceable

Any business-related contract can be invalidated if it is unenforceable or contains illegal clauses. As such, you should review the agreement with an attorney prior to signing.

Address any vague or unfair clauses and be sure that all parties have legal capacity to sign this type of legal document.

A partnership agreement that contains these elements can provide a solid foundation upon which to build a business. Without this foundation, the company could suffer, and partners could wind up in costly, messy legal disputes.