A partnership agreement is a legal document that outlines the agreement between two or more parties who want to join forces and operate a business together. Every partnership agreement is unique, but it typically includes several essential elements that need to be addressed to avoid future disputes.
Here are the contents that you would typically find in a partnership agreement:
1. Introduction and Purpose
The introduction section should explain the purpose of the agreement, the date, and the names of the parties involved. It should also state the type of partnership, such as a limited partnership or a general partnership.
This section should outline the contributions each partner makes to the business, such as money, assets, labor, or intellectual property. The agreement should specify the value of each partner’s contribution and how it will be valued in the future.
3. Management and Control
This section should detail how the partnership will be managed and how decisions will be made. Partnerships can be run by all partners, or one or more partners can have greater control than others. The agreement should outline how major decisions, such as hiring, firing, and financial decisions, are made.
4. Profit and Loss Distribution
This section should explain how profits will be distributed among the partners and how losses will be shared. This might include distribution of profits on a monthly, quarterly, or annual basis, and how losses will be divided up.
5. Withdrawal, Dissolution, and Termination
This section should outline how a partner can withdraw from the partnership, what happens to partnership assets if the partnership is dissolved, and how the partnership can be terminated.
6. Confidentiality and Non-Compete Clauses
This section should include provisions for the protection of confidential information and intellectual property, as well as a non-compete clause that prevents partners from starting a competing business for a specified period of time.
7. Dispute Resolution
This section should outline how disputes will be resolved between the partners, including mediation or arbitration procedures.
In conclusion, a partnership agreement is a vital document when entering into a business partnership, as it outlines the rights and responsibilities of each partner, and sets out the guidelines for resolving disputes and terminating the partnership. It is advisable to consult a legal expert when drafting a partnership agreement to ensure that it is legally binding, and tailored to the needs of the business.