All The Information You Need to Know About a Partnership Contract
Apr 25, 2022 By Susan Kelly

Depending on the nature of the business and the partnership engaged, partnerships can be complicated. The conception of a general partnership is a requisite in this type of company structure to reduce the complexity or conflict between partners. A collaboration agreement is a legally binding contract that specifies the terms and conditions of a company's operations and the nature of the partnership between its members.


Suppose you have a specific goal for your partnership agreement. In that case, it is important to include terms such as ownership percentage, profit, and loss split and partnership term length, decision-making and dispute-resolution authority for each partner, and the detachment or death of an individual partner.


Ownership Percentage


As part of the partnership agreement, each partner agrees on what they will bring. Partners can agree to provide capital to the company in cash or equipment, and they can also promise services or property as part of the partnership agreement. It is common for these contributions to determine how much each partner owns in the company when it comes to partnership agreements.


Profit and Loss Sharing


Profits and losses can be divided evenly among partners regardless of ownership holding, or partners might choose to share profits and losses proportionally based on their ownership stakes. These terms must be spelled out in the partnership agreement to avoid future disagreements. When profit is removed from the business, the partner should also specify this.


Partnership Duration


After achieving a set milestone or number of years, some partnerships are dissolved or terminated, while others continue for an unspecified period. If the time duration is not defined, who should include this information in a partnership agreement?


Resolving and Making Decisions



Problems with decision-making and disagreements among partners are the most frequent causes of partnership conflict. To ensure that decisions are made fairly and equitably, a voting mechanism or other method of enforcing checks and balances is included in the partnership agreement. A general partnership should also include guidelines on solving disagreements amongst partners through an arbitration clause in the agreement. Who can do this without going to court, saving both parties time and money?


Authority


The agreement should also outline the authority of the partners, which is also termed binding power. Who may expose the company to excessive risk is tied to a mortgage or other contractual commitment? The partnership agreement must specify who has the right to bind the company and what steps will be taken if that authority is exercised.


Death or Withdrawal



Also included in this agreement should be procedures for dealing with the death or withdrawal of a spouse. An agreement outlining the valuation process, or requiring each partner to hold a life insurance policy identifying the other spouses as the beneficiaries, could be included in these terms. Alternatively


Preparing Your Partnership Agreement with The Help of an Attorney


Rather than presenting a comprehensive breakdown, the information presented here serves as a starting point for further research. No tax or expert assistance is being offered here. You'll need a lawyer to aid you with this document's preparation.


Distributions


Isn't it true that you're all in this for the money and to build and maintain a decent standard of living? How will your business's profits be divided among the partners according to the terms of your partnership agreement? When and how much money will be exchanged between the partners? In outlining how earnings will be allocated, define whether each member will be paid wages.


Definitely Worth The Effort and Time


A partnership agreement does require time and money to draught, but the peace of mind that comes with knowing you and your partner are on the same page and understand how your business will run is well worth the investment. It only takes a few meetings and a smattering of paperwork to create a contract that will save you time and money in the long run.


Creating a Partnership Contract


You can find various examples of partner agreements by searching for a "partner agreement template" online. When it comes to drafting your partnership agreement, I recommend consulting with an attorney. As a result, it will be the complete document imaginable. To ensure that all parties are on the same page regarding the terms and conditions, you'll need a separate agreement that leaves no room for ambiguity.


Return to Normalcy or Die


If one of the partners withdraws from the partnership agreement or dies, the arrangement is instantly void. In a partner's death or departure, a buy-and-sell agreement can specify how their shares would be distributed. Frequently, these agreements require that the surviving partners be allowed to purchase the remaining shares.