Five Clauses Every Partnership Agreement Needs

A partnership agreement is a great way to go into business with someone without the expense and red tape of incorporating your business. Typically, partnerships are two-person business agreements, but they can also include three or more parties. While you are likely all enthusiastic at the beginning of the arrangement, it just makes good business sense to make sure that you get everything you casually agree to in writing. You don't want to have to rely on your partner's (or his or her heir's) memory in a decade or more when you need to use the information.

Things you absolutely need to include in a partnership agreement:

1. Percentage of ownership. One of the most important things to include in your partnership agreement is how much of the business each person owns. This might include shares or one owner receiving a higher percentage than the other , he or she invested more time or capital into the start-up.

2. Allocation of profits (and losses). Money is often the cause of disputes among partners. It's essential to outline who gets the profits and at what percentage as well as who is responsible for covering any losses.

3. What happens if a partner passes. If you are in business together long enough, you might have to deal with your partner passing. If you don't have what you want in this scenario spelled out, the heirs could force the surviving partners to liquidate the business.

4. Who makes business decisions. Managing by committee is rarely effective. By the time the group makes a decision, the opportunity has often passed. Better to let one person handle all except for the most crucial decisions (like selling the business.)

5. Methods for resolving disputes. It's also a good idea to provide a mediation clause that offers a way to settle major disputes among partners without ending up in court.

If you're looking for business or litigation attorneys to help articulate a business plan for your partnership, contact Fakhouri Law Group today. From real estate transactions to corporate law, we are well versed in all things business and corporate and have a solution for you. 

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