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What should your partnership agreement include? 

On Behalf of | Apr 2, 2024 | Business & Transactional Law

Going into business with a partner can be highly beneficial. You and your business partner can share visions and ideas as well as sharing financial and legal obligations. A complimentary skillset between business partners can see your company go from strength to strength. 

That being said, a business partnership must be founded on strong foundations. Informal agreements are not a good idea and they tend to break down. You and your partner will need to draft a partnership agreement. What should this include? 

The division of ownership 

Many partnerships operate on a 50/50 ownership basis but this doesn’t have to be the case. A business partner could come in with a lower ownership stake. Whatever levels of ownership each partner has, this must be clearly expressed in the partnership agreement. Any ownership stake should be a fair reflection on the amount of financial investment brought in as well as the amount of work put in by each partner. 

Defining responsibilities 

The partnership agreement should also clearly outline the responsibilities of each partner. For instance, who has decision-making power? How will deadlocks be broken? Who should team members approach with work-related issues? 

If one partner feels like they have no authority then they may become disgruntled, resulting in a partnership dispute. The same can be said if one partner feels they have been given too much responsibility for the level of investment they have put in. 

Resolving disputes 

Running a business can be stressful, and partnership disputes are bound to arise, even if they are only minor. What’s important is how these disputes are resolved. This can be outlined in the partnership agreement. For example, will the company make use of mediation or arbitration processes to settle disputes? 

In some cases, a partnership dispute cannot be resolved, and dissolving the partnership is the only option. Even if this happens, it doesn’t have to be contested or damaging to the business. By including the appropriate term in the partnership agreements, partners can agree to go their own ways on a peaceful basis. 

When facing any kind of business dispute, it is essential to have legal guidance on your side.