The term “partnership agreement” sounds simple. However, the document’s purpose is anything but straightforward. To be effective, it is crucial that you include certain key elements of a partnership agreement in your agreement. This article will look at elements that cover all stages of your potential partnership.
Forming the Partnership
Some elements of a partnership agreement relate directly to the partnership’s creation. For example, consider the following:
- Partners. Do you have any criteria for who can be part of your business venture? Will you have a limited number of participants?
- Shares of the Partnership. How will the partnership be divided? Will you base business ownership on money invested, or will you also consider other things a partner brings to the table?
- Length of the Partnership. Some business ventures may have an expiration date. If so, make sure your partnership agreement unambiguously spells this out.
Other key elements of your partnership agreement pertain to how you will manage your business going forward.
Management Provisions in Your Partnership Agreement
Including the following elements in your partnership agreement may help your business run smoothly.
- Authority. Who has the authority to speak for the business? This element, also known as binding power, is critical. Even if you only have two partners, you will not want one partner unilaterally making decisions and negotiating deals.
- Resolving Disputes. Disagreements can arise in any business with more than one owner. Your partnership agreement should include language stating how to resolve such disagreements. For example, you may require the partners to use mediation or arbitration instead of litigation whenever possible.
- Adding New Partners. Is there any possibility that your partnership will grow? It’s important to decide whether you can add new partners or not. Also, consider how current partners will determine what criteria they will use in the decision-making process.
Ending the Partnership
Companies dissolve for any number of reasons. Partnerships may start amicably, with great hopes for the future. Even so, it’s crucial to include elements in your partnership agreement that relate to its demise.
- Incapacity and Death. The unexpected loss of a partner could throw your business operations into disarray. You may feel uncomfortable thinking about this, but it’s important to address incapacity and death in your partnership agreement.
- Voluntary Withdrawal. People’s plans change, sometimes precipitously. Including language detailing how a partner can leave could prevent serious disagreements if someone needs or wants to leave.
- Involuntary Withdrawal. Sometimes partnerships seem headed for dissolution, but only because of one partner. Your partnership agreement can include provisions related to how a partner can be forced out of the company.
- Dissolving the Partnership. At some point, the partners may agree that their venture has run its course. But simply putting a “Closed” sign on the door (or website) probably is not enough. You may need to consider how to handle business valuation and cleaning up last-minute legal concerns. Putting this language in your agreement is prudent.
Make sure you discuss buy-sell agreements with your business lawyer. Your partnership agreement may serve the same functions as a buy-sell, but it’s too important an issue to take for granted.
Learn More About the Key Elements of a Partnership Agreement
Agreements between you and your partners should not be left to chance. Ask an experienced business lawyer to draw up your partnership agreement and other essential legal documents.
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.