Key Takeaways:

  • An ownership agreement defines how property, assets, or a business is owned, managed, and divided among parties.
  • For unmarried couples, a written contract can prevent disputes over property ownership and cost-sharing.
  • Small businesses benefit from ownership agreements that clarify roles, liabilities, and profit distribution.
  • Agreements should address decision-making, buyouts, and exit strategies to avoid future conflicts.
  • Different entities use different documents: partnerships use partnership agreements, LLCs use operating agreements, and corporations use bylaws or shareholder agreements.
  • Clear dispute resolution and transfer provisions are critical to protect all owners’ interests.

A contract of ownership outlines the terms and conditions of a sale agreement. Ownership can apply to a variety of things, such as a home or a business.

A Contract of Ownership by an Unmarried Couple

A couple that isn't married but plans to own any real property, such as a home, should have a written contract in place. For investments of this site, it's not enough to make a verbal agreement and expect everything to work out all right. If your relationship sours in the future, parties may remember the details in a spoken agreement quite differently.

When it comes to something as expensive and important as a home, written contracts allow you to protect yourself if you separate from your partner. Even if the two of you share equal ownership, a written agreement can make a dissolution much easier.

Basic terms to include in an agreement when a couple isn't married and wants to share ownership of a home are the following:

How ownership is shared

Normally, you'll do this as joint tenants or tenants in common.

How to split costs

This may include the following costs:

  • Purchase price
  • Down payment
  • Taxes
  • Closing costs
  • Other housing costs, such as maintenance and repair bills

Some couples share the costs equally, but you may decide on another arrangement that works best for you. To decrease the number of disputes over how to pay for home improvements, some couples decide that improvements over a set amount — you decide the amount — require consent from both parties, and each partner pays half.

How a breakup will affect ownership

There are three possibilities in a breakup:

  • One party wants to keep the home and the other one does not.
  • Both parties want to keep the home.
  • Neither party wants the home.

Most likely, both parties will move on or only one wants to stay. However, problems can arise if both parties want the house. A clause in the ownership contract may anticipate this possibility by offering some choices in deciding who gets the home in this case.

For instance, you might want your agreement to automatically give one party the right to buy out the other's share at fair market value within a certain period of time, such as 60 or 90 days. Alternately, you may decide on a coin toss as to who gets to buy out the other.

You could also come up with your own ideas on figuring out who owns the house if both of you want it. For instance, you can hire a mediator to help you make the decision.

If one partner buys out the other, it's very important to change the title to reflect the new ownership.

Dispute Resolution and Exit Strategies

Disagreements over ownership can quickly escalate without clear terms. A strong ownership agreement should outline how disputes will be resolved and how owners may exit their interest. Common strategies include:

  • Buy-Sell Provisions: Define how one party can buy out another’s interest, often based on fair market value or an agreed formula.
  • Right of First Refusal: Allow existing owners the first opportunity to purchase a departing owner’s share before selling to an outsider.
  • Mediation or Arbitration: Specify alternative dispute resolution methods to avoid costly litigation.
  • Forced Sale or Partition: In real estate, the agreement may require the property to be sold and proceeds divided if no buyout occurs.

These clauses ensure smoother transitions and reduce uncertainty in stressful situations.

Small Business Ownership and Writing Contracts

Business contracts cover important agreements that you enter into with other parties. You should learn how to draft a good contract if you're a small business owner. You may use a lot of informal agreements that aren't written or documented, but when it comes to important agreements, taking the time to draw up a formal contract is well worth it.

How do you know which agreements are important? They're ones that you rely on that can affect your business's future.

Contracts give parties the chance to do the following:

  • Limit liability
  • Clearly define expectations and obligations
  • Specify payment terms
  • Split up business risks
  • Ensure everyone understands their responsibilities

Consider this: If you spend more than five minutes wondering whether you need a contract, chances are you do.

What makes a contract valid? Typically, these four elements contribute to a legally binding document:

  1. Both parties demonstrate that they understand and agree to essential terms in the agreement.
  2. Consideration, which is the exchange of something of value, such as goods, cash, or a promise to do something
  3. A willingness to enter into the contract, usually in the form of a signature, but oral contracts are sometimes valid, depending on the situation
  4. Each party's legal competence, meaning each is of sound mind, and no one is a minor

Contracts offer many protections in business relationships. Knowing how to write and understand legally binding contracts is beneficial in many situations.

Key Clauses to Include in an Ownership Agreement

To maximize protection and clarity, an ownership agreement should cover:

  1. Ownership Percentages: Document each party’s interest in the asset or business.
  2. Capital Contributions and Expenses: Clarify how initial investments and ongoing costs are shared.
  3. Decision-Making Authority: Determine voting thresholds for major decisions, such as selling the asset or bringing in new owners.
  4. Profit and Loss Distribution: Explain how financial outcomes will be shared.
  5. Transfer Restrictions: Set rules for selling or transferring ownership interests.
  6. Dissolution or Exit Plans: Outline the process if the parties dissolve the business or sell the property.

Including these provisions can prevent conflicts and provide a roadmap for resolving unforeseen circumstances.

Types of Ownership Agreements for Businesses

Different business structures require different forms of ownership agreements to govern internal operations:

  • Partnership Agreement: Establishes the rights and responsibilities of general or limited partners, including profit distribution, voting, and dissolution procedures.
  • LLC Operating Agreement: Defines members’ ownership percentages, voting rights, profit allocations, and procedures for adding or removing members.
  • Shareholders’ Agreement: Used for corporations, outlining shareholder rights, transfer restrictions, dividend policies, and procedures for handling deadlocks.
  • Bylaws: Internal rules for corporations that govern board meetings, officer duties, and voting procedures.

Well-drafted agreements ensure that ownership transitions, management decisions, and financial obligations are clearly defined.

Frequently Asked Questions

1. What is an ownership agreement? An ownership agreement is a legally binding document that defines how an asset or business is owned, managed, and divided among the parties involved.

2. Do unmarried couples need an ownership agreement for property? Yes, having a written agreement clarifies ownership percentages, cost-sharing, and what happens if the couple separates.

3. What types of businesses need ownership agreements? Partnerships, LLCs, and corporations all benefit from ownership agreements to define member or shareholder rights and responsibilities.

4. What happens if an owner wants to sell their share? A well-drafted agreement typically includes buy-sell provisions or right-of-first-refusal clauses to manage transfers smoothly.

5. Can an ownership agreement prevent disputes? Yes. By outlining ownership rights, decision-making processes, and exit strategies, the agreement reduces uncertainty and potential conflicts.

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