It may be tempting to enter into a partnership on a handshake, but don’t do it. Written partnership agreements can help you and your partner(s) logically work through important business issues before you launch your business. It is much easier to work through these issues while your business is worth nothing. Decisions become more complicated when real money is at stake.
Aside from giving you a solid foundation from which you can launch a successful business, the process of preparing a partnership agreement will also serve as a “reality check.” It will help ensure that your personal relationships are not blinding you to the business failings of your potential partner(s).
Once you and your partner(s) have had initial discussions about partnership issues, an attorney can help you develop your written partnership agreement. The agreement should include the following:
- Name of the business and each partner
- Description of the nature of the business
- Where the business will be located
- Rights and responsibilities of each partner
- Amount of capital each partner is investing
- How partners will be compensated (salaries, bonuses, commissions)
- Distribution of profits and (if things go badly) losses
- Description of accounting procedures (Where will accounts be kept? Who signs checks? How will bills be paid? Who has access to the books?)
- Process for resolving disputes Who’s decision will prevail?
- What happens if a partner retires, dies, or otherwise leaves the business?
- Procedures and causes for expulsion of partners
- Process for adding new partners
- How the assets will be divided if the partnership is dissolved
- Noncompete agreements