Why Should I have A Partnership Agreement?

by P Howe

A partnership agreement is like a prenuptial agreement in some respects: when everything is rosy and exciting at the start of a business partnership you won't imagine ever needing one. So why bother drafting one, what a pointless added effort right? Wrong! A partnership agreement is intended to prevent lengthy legal battles which could occur in the absence of one.

Your partnership agreement should aim to be detailed and should include:

1. Business aims and goals of partnership: This may also include a breakdown of each partners' role.

2. Length of the partnership

3. Monetary contributions that have been made by each partner

4. Property contributions

5. Intellectual contributions: For example, in the development of computer software one partner may contribute all graphic design and one may write all programmes. This sort of breakdown of intellectual property can be included.

6. Distribution of profit and loss: It is vital everyone knows where your money is being distributed and that you are all happy with this breakdown.

7. Ownership of assets

8. Procedures regarding descision making will be outlined: this should help prevent disputes over important decisions in some cases as the partnership agreement can simply be referred back to.

9. Draws to partners: as partners in a business are not salaried in the traditional sense their income is referred to as 'draws.' These will be regular amounts of money given to the partners. Partners will keep reinvesting in the business venture at the same time.

10. Buy-out methods: Should one partner wish to leave the business or wish to remove a partner specific buy-out methods will be stipulated as to how a fair removal would be progressed. You can also include details of expulsion of a partner from the agreement under extreme circumstances.

11. Admitting of new partners

12. Sick leave, holiday, maternity leave.

This is by no means an extensive list but as you can immediately see, there are many points related to a partnership which may become contentious at some point if you have the misfortune to end up in the throes of a business dispute. Having a well drafted partnership agreement could also prevent you ending up in said dispute. A reference to your partnership agreement should mean disagreements are nipped in the bud before they escalate beyond easily manageable proportions.

You would be well advised to get your partnership agreement looked at by a solicitor as it is imperative that it is watertight. It is almost as pointless to have a badly drafted partnership agreement as it is to have no partnership agreement at all.

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Article submitted Friday, June 15, 2012 & read 34 times.

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