Is A Partnership Agreement Necessary?

For many businesses, a partnership is ideal. It allows a group of two or more people to contribute their collective time, effort and expertise to the success of the business, while spreading out the risks between them.

The law does not require partners to formalize their business arrangement with a partnership agreement. In fact, many choose not to, believing at the outset that they will be able to work together effectively, delineate duties appropriately, communicate with each other clearly, not overlook any issues and avoid disagreements on how to operate the business. Unfortunately, many soon realize that they were being a bit too optimistic.

Why A Partnership Agreement Is Valuable

At the highest level, a partnership agreement sets everything down in writing. It ensures that no misunderstandings or misinterpretations slip through the cracks, only to boil to the surface later to create problems that could jeopardize the business. It will remain a valuable point of reference that each partner can look back on during the life of a business, and it can prove critical as the business evolves.

A good partnership agreement is essentially a road map for working together effectively toward the success of the business. Even the mere act of creating a partnership agreement can prove enlightening, as issues frequently come up that had not been addressed previously that may prove critical down the line. The process allows for discussion and alignment of goals and duties. Disagreements can be hashed out in a more positive manner, before they lead to serious issues.

What Is In A Partnership Agreement?

The partnership agreement will include the percentage of the business owned by each partner, which is especially important to set down in writing if percentages are not going to be divided equally. It will include details about the division of profits and losses. It will dictate how decisions are made, and how disputes are to be resolved. If the partnership is temporary, it can document the length of the partnership, and also address what happens if a partner wants to leave the partnership.

Ultimately, a partnership agreement is about thinking ahead. It is about doing a little work now to avoid having to do a lot of work later. It is about protecting each partner's interests and setting the stage for a successful business.

Partnership agreements can be created with the assistance of an experienced contract attorney. An attorney who has a history of drafting effective business documents will be able to craft a partnership agreement that is molded to the needs of the specific business.