A business partnership agreement is very important. It helps define the relationship and can even help prevent future disputes. It should be drafted at the very beginning, ideally before the business ever opens its doors.
Every partnership agreement is going to be unique, based on the type of business and the relationship between those business partners. But here are a few areas that should generally be addressed when making these agreements.
Duties and responsibilities
Each partner should know exactly what responsibilities they have, and they also need to understand their authority within the business. This could relate to decision-making abilities, for example, which may be split between the partners or divided based on their area of expertise.
Contributions and earnings
Financial details should always be addressed. This includes how much each business partner is expected to contribute and how earnings and income will be divided. For instance, some partnerships set up a salary for each person, while others take a percentage of overall earnings.
Dispute resolution tactics
In the event that a dispute does arise in the future, a partnership agreement can already define some of the steps that may need to be taken. An example could be requiring mediation before litigation.
Liabilities and losses
If the company suffers losses or takes on significant debt, business partners should also understand their financial responsibilities. Some of this will depend on the chosen business structure, such as using an LLC to avoid personal liability.
When starting a business partnership, it is crucial for both parties to know how to draft an appropriate agreement and what legal responsibilities they have.