Business Partnership Articles: Everything You Need to Know
Business partnership articles, or articles of partnership, form a legal document that creates a binding agreement amongst business partners to combine their capital and labor while sharing their collective profits, losses, and liabilities.3 min read
Business Partnership Articles Overview
Business partnership articles, or articles of partnership, form a legal document that creates a binding agreement amongst business partners to combine their capital and labor while sharing their collective profits, losses, and liabilities. Business partnership articles are not required legally by any regulatory agency or government body and entering into them is entirely voluntary, but it is considered a best practice to use them. Business partnership articles are often useful in resolving or preventing disagreements with partners since they clarify the relationship terms and outline how a partnership’s assets may be shared.
Components of Business Partnership Articles
Business partnership articles will typically cover a number of details related to the formation of a partnership. These include:
- The name of the partnership. For your name, you can use the last names of the partners involved or you can make up a name that is in some way reflective of your business. If you choose the latter, you must use your state’s business name search engine (example) to make sure the name is free to be used.
- Partnership contributions. Which partners will contribute property, services, or cash and in what amounts, as well as what ownership percentages they will subsequently have, should be recorded in the articles.
- Profit and loss allocation. Whether these will be divided amongst the partners proportionally or by some other system should be stated. Some partners may have different financial needs than others, so proportional distribution may not always be the best option.
- Authority of the partners. Unless stated otherwise, any partner will have the power to bind the partnership without the other partners’ consent. If a majority or unanimous consent is desired for partnership decision-making, this should be stated outright.
- Management duty. Although it may not be necessary to create strict divisions regarding who has the authority to act in what capacity, it may be useful to detail to some degree who will be responsible for certain aspects of the business. Such aspects may include bookkeeping, customer relations, personnel supervision, and business negotiations.
- New partner admittance. If you think that at some point you will want to expand the business, you should detail how new partners may be brought on. Agreeing on this beforehand will make the issue a lot easier to deal with should it arise later.
- Partner withdrawal. Similarly, how the withdrawal of a partner will be handled, including withdrawal by death, should be specified. In the case of voluntary partnership withdrawal, a buyout scheme should be created.
- Dispute resolution. If the partners become deadlocked over an issue, how the deadlock will be broken should be stated. Mediation, arbitration, and court-ordered resolution are the three most common options.
Additionally, the following basic information should also be included in the business partnership articles:
- The names of the partners.
- The partnership’s address (for its main place of business).
- The partnership’s business purpose.
- The partnership’s terms.
- The partnership’s beginning and end date, if it is not meant to be perpetual.
- How salary distribution (if there is any) will work in the partnership.
- Under what conditions and by what means partnership rights can be sold or transferred.
Qualities of a Strong Business Partnership
In addition to having well-written business partnership articles, the following qualities will signal the likelihood of a successful partnership for the parties involved:
- Trust. If business partners cannot trust one another, it is unlikely that any partnership can work for an extended period of time. Partners do not have to act or think alike, but they should be able to feel that they are being dealt with fairly by the other partners.
- Mutual respect. Just as being of similar personality is not necessary to trust one another, so too is it unnecessary for respect to be felt. In fact, to some extent differences in ability may heighten respect for one another insofar as these other abilities can shore up one’s own shortcomings, which will thereby strengthen the business as well.
- Shared values and vision. That said, it is important that business partners have a similar general outlook for their business, otherwise the conflicting goals will most likely either cripple the partnership or tear it apart.
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