What to include in a business partnership agreement
Entering into a business partnership can come with conflicts and misunderstandings between you and your new associate.
Having a written agreement that clearly outlines your rights and responsibilities is important for maintaining a healthy business relationship between partners. Some areas may seem simple or irrelevant to a business agreement, but it can be beneficial to include smaller points to avoid issues in the future. Here are some key areas to include in your partnership agreement:
- Name of partnership:
agree on a name for your business.
- Contributions to the partnership:
work out and record how much each person initially contributes to the business, whether it’s cash, property, or services, and decide what percentage each owner will have.
- Admitting new partners:
agree on a procedure for admitting new partners so that you can equally decide on a new person.
- Distribution of profits/allocation of losses:
decide how profits and losses are allocated to partner shares.
- Partnership decision-making:
to avoid conflict when it comes to making unanimous or individual decisions, set up a decisionmaking process that everyone is happy with.
- Death, disability, or withdrawal:
if a member of the partnership wants to withdraw from it, or is forced to due to death or disability, then a buy/sell agreement is needed to manage the situation. Consider who you trust to make decisions on your behalf, who would inherit the shares of your company etc.
- Resolving disputes:
to deal with situations where you and your partners can’t agree on something, set up a mediation clause where everyone can agree on a procedure to resolve major conflicts.
- Management duties:
work out some guidelines on how the business will be managed. This can include who is responsible for dealing with customers, supervise employees, manage bookkeeping, negotiate with suppliers, etc.
- Partner time off:
work out how leave will work, including paid and unpaid sick leave, vacations, annual leave etc.
- Non-competition clause:
if you’re concerned about a partner leaving and then competing with the partnership’s business, you can include a clause that restricts them from doing so within a defined time period.