Ron, Laura, and Donna decided to start a business in Florida. After discussing the various business entity types, they decided to form a partnership. This structure seemed to meet their needs best. Although they needed to formalize their relationship, none of them had ever written any partnership agreements. This simple guide explains some of the basics. However, we strongly encourage you to consult with an attorney before forming any type of business.
The Purpose of Partnership Agreements
Partners might meet and decide essential details about their business. But it’s always best to get decisions of this magnitude in legally binding, written documents. That’s where partnership agreements come in. But partnership agreements do more than simply lay out a business plan.
A well-drafted partnership agreement can reduce future conflicts between the partners. It also states how to deal with the inevitable disagreements that occur whenever more than one person is involved in a business venture.
Composition of the Agreement Itself
The content of your partnership formation documents might vary in specific details. However, partnership agreements typically include certain sections, including the following.
Business Operations
Will the partners run the company or hire a CEO? Partnership agreements can lay out business operations, including management and other responsibilities. Legal obligations can be spelled out in your agreement. Also, banking information often appears and may state which partners are allowed to sign checks.
Ownership and Dividends
Partnership agreements typically indicate each partner’s ownership percentage of the business. The percentage does not have to be equal between the partners. For example, Donna’s investment in the business was larger than the other partners. Her ownership interest typically would be correspondingly greater than Ron and Laura’s.
Will your partnership pay dividends? If so, your partnership agreement can state when to pay, how to pay, and how much each partner might receive.
Resolving Disputes Between Partners
Like any other relationship, a partnership changes over time. At some point, one or more partners may disagree on important business-related decisions. When disputes arise, it helps to have some guidance on how to react. Partnership agreements typically contain provisions that provide such guidance. For example, your partners might require binding arbitration, or your agreement might indicate the state laws that govern your partnership.
Enforcement of Partnership Agreements
What will the partnership do if one or more partners break the rules? Your agreement can provide much-needed guidance when partners go rogue.
Length of Partnership and Termination Are Covered
You and your business partners might want to limit the time your partnership exists. Partnership agreements often contain this information or, at the least, will state how to terminate the partnership. For example, how will you handle the situation when one partner wants to terminate the partnership, and the others do not?
Also, buy-sell agreements are important to every business because they cover how they will handle an owner’s departure. You might include provisions in your partnership agreement or ask your business lawyer to prepare a stand-alone document.
Avoid the Pitfalls of Partnership Agreements. Talk to a Business Lawyer.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.