Verbal agreements tend to never work out. Putting the terms of the partnership in writing is the smartest thing you can do to protect your business. Spelling out the rights and responsibilities in a written partnership agreement will better equip you to settle conflicts if they arise. You’d be surprised how minor misunderstandings can erupt into full-blown fights. Also, when you don’t have a written agreement saying otherwise, your state’s laws will control many aspects of your business.
Having a partnership agreement helps your business in many different ways. It clearly defines each partner’s role and it will structure the relationship in a way that suits the business. In the agreement you can define how you and your partners will share profits or losses, what will happen if a partner leaves the business, and other guidelines you or your partners think are important.
One area all partnership agreements cover is the name of the partnership. You can either use your own last names, such as the famous business partnership Smith & Wesson, or use a made up name like North side Technicians. If you do choose to make up a name then you must make sure the name isn’t already in use then file a fictitious business name statement with your county clerk.
The second area most business partnership agreements cover is the contributions to the partnership. It’s important that you and your partners write out and agree to whose going to contribute cash, property, or services to the business. Also, agree to each partner’s ownership percentage. Partnerships who don’t outline these terms tend to fall apart when disagreements over who has to do what occur.
The third area most partnerships agreements cover is the allocation of profits, loses, and draws. This tends to be a critical area in determining the success of a business partnership. How will profits and losses be allocated? Will they be allocated based on each partner’s percentage of ownership in the business? How will profits be distributed and when? This is an area where each partner should pay particularly close attention to the terms their agreeing to.
Disclaimer: This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should no