If you contemplate setting up your new business as a partnership, your partnership agreement will become your foundation document. As such, it should not only be written, but also carefully drafted so as to cover all major potential issues that could arise.
FindLaw advises that partnership agreements can become long and complicated. Nevertheless, yours should contain clauses relating to any and all areas of possible conflict you foresee. Furthermore, it should contain a dispute resolution clause that sets forth the procedure, such as mediation, arbitration, etc. that you and your partners will follow if and when a dispute actually does arise.
Ownership and duties
Your partnership agreement should list the specific type(s) and amount of capital contribution that each partner makes to your partnership. These can include not only cash, but also any of the following:
- Any other type of asset
- Special knowledge and/or skill
Be sure to set forth the ownership interest each partner obtains as as result of his or her contribution.
Your agreement should likewise contain a detailed list of the precise partnership duties each partner will assume, including any of the following that applies:
- Management decisions
- Authority level
- Top-level duties
Partners normally share in the partnership’s profits and losses based on their respective ownership interest. If you intend to use a different allocation method, be sure your partnership agreement thoroughly explains it. Furthermore, if you intend to allow partners to take regular draws from their respective profits, you need to state this, too, plus any draw limitations.
Finally, your agreement needs to specify the portion of partnership liabilities each partner will personally assume should your business fail and it declares bankruptcy. Again, each partner’s liability assumption percentage generally matches his or her ownership interest, but you may use a different calculation. Just make sure your partnership agreement states it clearly.