When you're in a partnership, it's highly advisable to have a formal, written partnership agreement. While it is not required by law, a partnership agreement can give you a framework for defining each partner's obligations, and settling the conflicts, disagreements and other difficult–to–resolve issues that naturally occur in nearly every business relationship. Ultimately, it will help ensure the long–term well–being of your business.
Without a partnership agreement, your business will likely be governed by the Uniform Partnership Act (UPA). Adopted with some variations by nearly every state, the UPA sets the guidelines for partnerships, but allows for little flexibility. This general law does not take into account the unique relationships most partnerships have, and it may not fit your specific business. For example, without a formal agreement, the law may assume that each partner has an equal share of the business, and tax liability would be determined accordingly. Similarly, should one partner leave the business or die, the partnership would have to be dissolved, unless an agreement stipulates otherwise.
Create your written partnership agreement with the assumption that anything that can go wrong with your partnership will. Friction between partners over things such as money, power or ego frequently undo these business relationships. Your partnership agreement should prepare you for all possible "what–if" situations, and set methods for resolving them. You will find that it pays to be extra cautious.
You can save money by drafting your own version of the key parts of your agreement, then taking it to your firm's attorney to be reviewed, clarified, modified and finalized. It is important to have an attorney review the contract, because you want to make sure it complies with the partnership laws of your state. Finally, each partner might want to have his or her own lawyer look it over, since your firm's attorney can't represent the interests of each individual partner.
Below are some of the key areas you will want to cover in your written partnership agreement:
The previous content is provided by OPEN: The Small Business NetworkSM from American Express.