PARTNERSHIP AGREEMENT

How to form a partnership, and draft partnership agrements.

Whenever two or more people want to go into business together, they often agree to form a partnership. No matter if you are starting a business with family or friends, or are looking for partners to help you run things, forming a Partnership is not a step to be taken lightly. A partnership is a legally recognized business entity that can exist between multiple people. When these people want to get together and form a business entity, they can draft a Partnership Agreement and determine what rules under which they wish to operate. This is what you need to know before you get started:

HOW DO I FORM A PARTNERSHIP? A partnership can be formed orally or in writing. Because a partnership is a legally recognized business entity that imposes certain duties and obligations upon its members, you should always be sure of the people you choose to form the Partnership with. It’s one thing to be friends with a person. It’s completely another to form a business entity with them and go about making money.

WHAT DOES A PARTNERSHIP DO? Put simply, a partnership is an agreement between 2 or more people who want to do business for profit. If you enter into an agreement with someone else to do business and make money, you may automatically form a partnership without you knowing it. Whenever you want to make money with other people, you should first set out the terms of the Partnership Agreement in writing. You don’t want an assumption that went unsaid to come back and haunt you later on.

CAN PARTNERS DECIDE WHAT THEIR OBLIGATIONS ARE? Yes and no. Though there is a lot of leeway in drafting Partnership Agreements, some things are already determined by law. Partners can agree to share or delegate responsibilities, how they will share profits and losses, etc.

WHAT DOES A PARTNERSHIP AGREEMENT NEED TO INCLUDE? Creating a Partnership Agreement is probably the most important step you’ll take when entering into a partnership. You’ll need to make sure you have as much information in the agreement as possible so no one is left confused or unsure of what their responsibilities are. Partnership Agreements need to state the purpose for which they are formed, the name of the business, the length the Partnership is intended to last, and much more.

WHAT IF I WANT TO GET OUT OF THE PARTNERSHIP? Your Partnership Agreement should cover all contingencies, especially what happens when one or more people want to get out of the business. If you’ve entered into a Partnership Agreement with other people who want to sell the business or shut it down completely, but you want to keep going, your Partnership Agreement has to be clear as to how to proceed. Partnerships often have partners who have differing interests and desires. And nothing causes more problems than a Partnership Agreement that is silent as to how to handle these differing desires.

Starting a new business can be a fun, exciting time. It can also be a very stressful, difficult time. If you’ve decided to be partners with other people, you owe it to yourselves to make your Partnership Agreement as precise and clear as possible. Partners need to be able to rely upon one another. They also need to understand how the business is supposed to operate. Leaving a Partnership Agreement silent on an important matter is the surest way to see your partnership end in less than happy circumstances.

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