So before you tie the knot, so to speak, you have to enter into a so-called partnership agreement to protect yourself and your business. Pre-planning avoids costly wrangling and legal battles. No matter how much a friend is your potential partner, you should never enter into a business partnership with him or her without a formally developed partnership agreement. Because this is your business partnership, a well-developed partnership agreement not only defines your rights and obligations, but also describes how to resolve conflicts that may arise from time to time. In addition, partnership agreements address expected “changes” such as inheritance, growth, retirement and dissolution. Essentially, these agreements will help you anticipate good times and bad times. Partners may agree to participate in gains and losses based on their share of ownership, or this division can be allocated to each partner in equal shares, regardless of participation. It is necessary that these conditions be clearly outlined in the partnership agreement in order to avoid conflicts throughout the period of activity. The partnership agreement should also provide for the date on which the profits can be deducted from the transaction. Partnerships often continue to operate for an indeterminate period, but there are cases where a business is destined to dissolve or end after reaching a certain stage or a certain number of years. A partnership agreement should contain this information, even if the timetable is not set. The name of your business partnership is an important provision because it explicitly identifies the partnership and the name of the company for which the agreement is made. This eliminates confusion, especially when there are several partnerships and/or companies that may be involved.
If you enter into a partnership, the most important document is a partnership agreement. Partnership contracts are legal documents subject to state laws and each state has different language requirements in these agreements. Each partner has its own interest in the success of the company. Given this personal interest, it is generally accepted that each partner has the authority to make decisions and enter into agreements on behalf of the company. If this is not the case for your company, the partnership agreement should define the rules specific to the authority given to each partner and how business decisions are made. To avoid confusion and protect everyone`s interest, you need to discuss, determine and document how business decisions are made.