Partnership Agreements

If you are operating your business as a partnership, you should have a written partnership agreement. This is true for family partnerships as well.

The need for a partnership agreement can be summed up in two words: things change. You and your partners may agree about everything now, but disputes could arise later. Or one of you could die unexpectedly, leaving the survivors to deal with the deceased partner’s heirs.

The basic provisions of a partnership agreement should include the parties to the agreement, the partnership name, purpose, location of the business, and the division of management responsibilities. The agreement should also indicate the following:

• Initial capital contributions (or services in lieu of capital).
• How and when additional capital contributions may be required.
• How profits and losses will be shared.
• How much of the profit is to be distributed and how much is to be left in the company for growth.

Beyond the basics, the agreement should anticipate major events and spell out how to deal with them. For example, if one partner dies, what are the rights and obligations of the other partners? Under what circumstances can a partner leave, retire, or be expelled? What are the financial arrangements for departing partners? How long must an ex-partner wait before starting a competing business?

A partnership agreement can't address every possible contingency, so consider an arbitration clause to handle disputes that you and your partners can't resolve on your own. Without such a clause, you may face a very expensive lawsuit to settle disputes.

You and your business will benefit from a properly written partnership agreement. See your accountant and your attorney for assistance in getting it done right. Give us a call; we are here to help you.



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