Business Partnership Agreement Definition
Business partnership agreement is a contract between parties that binds all participants to specific terms and conditions of their working relationship.3 min read
2. Partnership Liability
3. Important Elements of a Partnership Agreement
Updated November 23, 2020:
A business partnership agreement is a contract between two or more parties that binds all participants to specific terms and conditions of their working relationship. This agreement is drafted and signed by the partners it refers to, but it is always a good idea to get a business formation or contract lawyer involved to make sure the agreement is well-written and legally binding.
What Is a Partnership Agreement?
Partnership agreements are a part of the business world, but they are very similar to personal relationships. Both business and personal relationships need to have these basic elements, among others, in order to thrive:
Unlike personal relationships, business relationships should have everything regarding their relationship in writing. Specificity ensures that the partners are prepared for any disputes, deaths, or ownership changes among the partners. A partnership agreement basically gets everyone on the same page at the start of the business relationship and continues to govern the relationship throughout the life of the business or partnership.
Such agreements are used mainly for for-profit business endeavors and can include more than two parties. It is very common for individuals to form partnerships, but certain company types can also be involved. For instance, an LLC can form a partnership with a corporation, or an LLC can partner with individuals.
Business owners should be sure to write out and sign their partnership agreement at the start of the business. It is not a good idea to wait until a dispute or other problem arises to form an agreement; at that point, it will be too late.
Well-written business partnership agreements should be complex because they should cover many different scenarios and include plenty of detail. This is where enlisting the help of an experienced business attorney is a good idea. They can help to make sure that you cover all your bases. Even if you want to draft your own agreement, you can still have an attorney look it over once it's finished.
The Uniform Partnership Act was put in action to govern any business disputes or issues between partners who did not form a written agreement. If a dispute comes up and the partners do not have an agreement written, they can follow the state laws and guidelines of this act as they work through their issues. This isn't an excuse not to write your own agreement, however.
Even if a problem doesn't arise during the lifetime of a partnership, the act of writing an agreement together starts the business relationship on the right foot. It gets everyone in agreement and all expectations and visions for the business out in the open.
The partners involved in a general partnership are considered liable for any debts or legal issues that the partnership incurs. Even if a partner leaves the business relationship, they are considered liable unless the agreement states otherwise and the remaining partners take the liability on themselves.
This is another important reason to form a partnership agreement. It will help all parties understand their responsibilities and liabilities when it comes to the relationship.
Important Elements of a Partnership Agreement
There are several things to keep in mind when forming a partnership agreement. When deciding whether a partnership is the best structure for your business relationship, you'll want to make sure that all of the parties involved fully understand the agreement.
Here are some of the most important aspects of a partnership to understand:
- General partnerships do not offer liability protection to partners.
- The more detailed and straightforward the partnership agreement is, the more partners will be equipped to handle issues.
- Partners involved in a partnership each own a piece of the business.
Here are basic details that every partnership agreement must include:
- Partnership name and address
- Partnership duration
- Instructions for handling a partner leaving the business or dying
- Purpose of the partnership
- Banking information (who can sign checks for the business)
- Contributions and ownership percentages of each partner
- Plans for handling issues with business debts and income
- Plans for handling money and legal problems
- Rules, duties, and responsibilities for each partner
- Compensation for partners
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