What Terms And Conditions Should I Include In My Partnership Agreement

August 6, 2021    commerciallawyersblog   
What Terms And Conditions Should I Include In My Partnership Agreement

Do you have plans to start a partnership business? If yes, for the sake of your business structure, you should have a partnership agreement that will cover all the important concerns for both the business and the relationship between you and your partner. Here we discuss what a partnership agreement is and what terms and conditions you should include in the agreement.

What Is A Partnership Agreement?

When two or more business people start a business together, it will be called a partnership business. In this business structure, you and your business partner should make formal terms of the partnership in written form. Vital business matters like how business decisions are taken, what happens after one partner leaves the business, and how a partnership agreement governs disputes?

When Do You Need A Partnership Agreement?

If you own a partnership business, you will need a partnership agreement. It will be comparatively easy and less costly for you to set up a partnership business structure. Another advantage of a partnership business is that it gives the partners equal control and business management.

Unlike a company, a partnership is not a separate legal business entity from the partners, and here, you and your partner will be liable for all the business debts and costs. That is why you should keep the partnership terms and conditions in writing.

How Do You Use It?

Both of you should sign the partnership agreement. Once it is signed, all the terms and conditions mentioned in the deal becomes legally recorded. Thus, whenever a relevant consideration like taking crucial business decisions or dispute solving appears in the flow of the business, you have to refer to the agreement.

Let us give an example of a partnership agreement. Say two friends are starting a partnership business, and they have agreed that one of them will take care of the majority of the business dealings because of his better experience. They also agree that the other partner will mostly handle client meetings and customer dealings. In such an agreement, the person looking after the majority of business dealings takes the most profit.

What Terms And Conditions Should You Include In A Partnership Agreement?

In general, in a partnership agreement, a range of issues are addressed relevant to the specific business. Would you please look for partnership agreement solicitors? A professional lawyer will help you make the list of topics that you have to consider. They will also give you advice on what is expected. If you have any particular requirements for your business, you can tell your lawyer.

They will provide you with the best advice on how to include the terms in the partnership agreement. Some significant points that you should include in the agreement are as follows.

  • The partnership name and type.
  • If applicable, the DBA (doing business as) name.
  • Whether the partnership is permanent or for a temporary period or term.
  • The purpose of the business, which will include services and products you will offer.
  • The partner types, limited or general.
  • Different contributions from each partner, like service, property, and cash.
  • Processing of adding new partners to the structure and the required contribution from them.
  • Necessary future contributions and their impact on the shares.
  • Distributions of profit and loss.
  • Retention of profit for business requirements.
  • Roles and responsibilities of business managers, including their working hours.
  • Procedures of decision-making and voting.
  • Bookkeeping provisions and financial statements.
  • When and how meetings are organized.
  • The procedure of maintaining records.
  • Time off for the owners.
  • Interest policy conflict.
  • Ownership of business assets.
  • Sales and transfers of partnership interests.
  • How the business will continue when one of the partners leaves or dies.
  • Dispute resolution and arbitration
  • Severability.
  • Failure provisions to make an initial contribution.
  • Situations in which business partners can draw money from their share of profits.
  • Process of removal of a partner.
  • Procedures of dispute resolution and arbitration.
  • When and how amendments can be brought to the partnership agreement.
  • The state government laws with which the partnership will comply in situations not mentioned in the partnership agreement.

What Other Things Can Be Included In The Agreement?

In addition to the inclusions mentioned above, partnership agreement lawyers advise other inclusions too, which are as follows.

  • Restrictive Covenants

Primary restrictive covenant types are generally non-disclosure, non-compete, and non-solicit. And these clauses protect the business from specific actions by the partners (e.g. when a partner is leaving). Because of the non-compete agreement, a departing partner may not begin another competing business or start working in such a business for a specific period within particular geographic boundaries. Non-disclosure clauses keep the confidential information safe, while non-solicit clauses prevent the leaving partner from stealing clients.

  •  Buy-Sell Agreement

You can either include these provisions in the partnership agreement or keep them together in a separate agreement. The buy-sell agreement will indicate how the business will proceed when a partner dies, the partnership gets dissolved, or a divorce impacts the ownership. It will also guide you about what to do when you face bankruptcy. There is another advantage of having a solid buy-sell agreement. It prevents the partners from deciding in the middle of an unexpected situation.

  • Partnership Allocations

In this section, you have to include how profits and losses will be distributed among the partners. It is sometimes calculated based on ownership and percentage. You also have to address other compensation forms.

Why Should You Need A Lawyer?

Drafting a partnership agreement involves so many steps, and thus, you have to be highly cautious about including all the crucial points on terms and conditions. A qualified business agreement lawyer with years of experience can help you understand the whole procedure and give you the perfect guidance.

Where Can You Get Help?

Commercial Lawyers is a high-ranked law firm based in Perth that can get you the best professionals in the field. So, whenever you need help, you can get in touch with them.

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