50 50 Partnership Contract: Everything You Need to Know
A 50 50 partnership contract is held between two or more business partners. All partner has an equal share in any profits or losses that the business generates.3 min read
Updated July 7, 2020:
A 50/50 partnership contract is held between two or more business partners. Under this type of contract, each partner has an equal share in any profits or losses that the business generates. The contract is used to outline each partner's responsibilities, rules about the general partnership, and profit and loss distribution among partners.
Overview of a 50/50 Partnership Agreement
Partnerships agreements are also referred to as:
- Articles of partnership
- Business partnership agreements
- General partnership agreements
- Partnership contracts
When two or more people are planning to run a for-profit business together, a partnership contract is recommended.
Under a 50/50 partnership, each party has an equal say in the operation and management of the business. Partners entering into an agreement can dissolve the partnership at any time.
Parties that enter into a 50/50 partnership can contribute to the business in different ways. An example would be one partner who has business skills managing the enterprise and the other investing the capital to finance the business. Parties of a 50/50 partnership would enter into an agreement based on these contributions.
The key terms in a 50/50 partnership include:
- Name of the partnership.
- Each partner's contributions.
- Each partner's authority to make binding contracts or debts.
- Each partner's specific duties.
- How disputes will be resolved.
- How decisions will be made.
An equal split is not required between partners. One may cover 100 percent of the credit line while the other provides 100 percent of the real estate. Regardless of the percentage breakdown, each partner shares 50/50 in any profit or loss.
The buy/sell portion is an important function of a 50/50 agreement. This part of the agreement states the terms and conditions in the event of a buyout, resignation, retirement, divorce, or death. This ensures that the partnership will continue as originally designed.
Without this portion clarifying the terms, the partnership will be dissolved according to state law and the Uniform Partnership Act.
A special allocation is when a disproportionate distribution of profits or losses is written into the 50/50 partnership agreement. An example of a special allocation is when one partner receives 70 percent of the business's profits while the other partner receives 30 percent.
There are pitfalls to being involved in a 50/50 partnership. These include:
- It is not unusual for one partner to contribute an unequal share of money, credit, assets, time, or other resources necessary to run the business.
- Important business decisions are often delayed when partners fail to reach an agreement.
- Partners often reduce the possibility of not being able to reach an agreement by allocating a small percentage, such as 2 percent, to an unbiased and trustworthy third party. This person would cast the deciding vote should the majority partners not be able to make a decision.
- If the court must step in because a 50/50 partnership cannot reach a material agreement and business comes to a halt, the assets of the company will be liquidated.
Things to Consider When Entering Into a 50/50 Partnership
A 50/50 partnership requires input and consent from both partners to build the business. Since this is the case, trust is a vital factor. Without trust, there will be conflicts. To avoid this, prior to signing the agreement, hash out the goals of the business, the commitment level each partner has, salaries, and how the dissolution of the company would proceed.
Each partner must have access to all company property regardless of each one's assigned tasks. It is also important to have in place a dispute resolution process that is fast and efficient. If this is not part of the agreement and a legal dispute arises, it can be very costly.
It is recommended that when a dispute arises, whatever resources are used to resolve the conflict be kept to a minimum. This will lessen the impact on the business while saving time and money. Mediation is another option to consider when a dispute arises. This could allow the partners to move ahead without being bound to the original agreement.
Each partner needs to set reasonable salary expectations, and both partners need to agree about each other's salaries.
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