Get it in writing when things are going well
On behalf of Kadish & Associates Law Group posted in blog on Friday, August 4, 2017.
There is always a honeymoon period in every relationship, whether it’s personal or professional. During this time, everyone gets along and makes compromises. This may work in the short term, but as a businessperson, you probably don’t want to take chances with the future of your company.
By memorializing the business relationship with a partnership agreement, you can rest assured that there is a written record of your agreements with your partners. This way, everyone involved knows what they are responsible for and what their rights are with regard to the business.
The basics
You can tailor your partnership agreement to your needs, but most contain basic provisions such as the following:
- Partnership length
- Ownership percentages
- Profit and loss distribution
- Purchasing shares
- Partnership termination
- Management powers
- Partner duties
This can serve as an outline for the information that you need to include in your partnership agreement.
Factors to consider
As you think about creating your agreement, you may want to consider the following:
- Tax considerations
- Each partner’s strengths
- Each partner’s weaknesses
- Liability issues
In addition, you and your partners may want to consider how to deal with entering and exiting partners. Will there be a buy-in for incoming partners? Will there be a buyout for outgoing partners? You may also want to include some agreements regarding competition if a partner leaves. Other considerations include what will happen to the interest of a particular partner if he or she dies or divorces.
What happens if a dispute arises among the partners? How do you and your partners want to deal with disputes? In some instances, legal action may become necessary. Your agreement could stipulate an agreement to attempt mediation or arbitration instead of filing a lawsuit.
The important thing to remember is that your partnership agreement should cover as many eventualities as possible. You and your partners may get along now, but that might not always be the case. It may help everyone to know that there are plans in place to deal with these issues.
Getting it right
In order to make sure that you include every basic issue, along with every issue specific to your needs, it may be a good idea to get some help. Your partnership agreement is a legally binding contract. It will need to comply with current Arizona law so that your partnership agreement will remain enforceable should something go wrong.