Partnering Up: The Top 5 Things to Consider in a Partnership Agreement
Partnership agreements are critical legal documents that detail the relationship between two or more parties2 min read
Partnership agreements are critical legal documents that detail the relationship between two or more parties. The agreement outlines the key expectations, obligations, and rights of each partner, and should be differentiated to the situation of the partners. For those based in Dallas, who are looking for counsel to understand local regulation, this article provides the five most important things to consider when establishing a partnership agreement.
Forming a successful partnership requires that each partner understands the responsibilities and has the necessary commitment to the venture. A strong, well-crafted partnership agreement can be the foundation of a successful relationship. The agreement should consider the specific needs of the partners and the venture, and along with the individual commitment from each partner, will help ensure that the venture’s goals are met.
When entering into a partnership agreement, there are five essential matters to consider. These are: profits and losses, investments, responsibilities and liabilities, dissolution, and dispute resolution process.
1. Profits and Losses
The agreement should clearly stipulate the percentage of profit each partner is entitled to, depending on their investment amount or ownership rate. The agreement should also invision what will occur if the venture encounters losses. It is important for both partners to be familiar with the tax implications incurred in the event of profits or losses.
Partners should also carefully discuss the investment envisaged and specify the conditions. Partners may agree to a fixed amount of money that participants will invest in the venture. This may also include contributions from partners in the form of intellectual property or know-how. The agreement must specify, under what conditions, such contributions are valued.
3. Responsibilities and Liabilities
The partnership agreement should outline the individual responsibilities of each party towards the venture and the specific activities that each will undertake. This should also include an agreement on any additional resources needed, such as employees or external contractors. It is also critical to consider legal liability and the limited liability structure of the partnership.
The parties should also think through what should happen should one or more of the partners wish to exit the venture. In this case, the agreement should clearly state the conditions to terminate the agreement and the steps leading to dissolution of the partnership.
5. Dispute Resolution Process
Disagreements over the course of the partnership, or disputes between the parties, should be expected. Therefore, the agreement should lay out the steps to be taken to solve such issues. This could include mediation and even arbitration in the presence of a neutral third party.
It is vital to carefully consider and understand all of the implications of a partnership agreement. Taking the time to work through each of the five essential matters outlined above will lead to a smooth and successful relationship between partners. Those based in Dallas looking for counsel to understand local regulation should also consider the services that UpCounsel can provide. With access to high quality attorneys on demand, and with profiles of experienced lawyers displaying client ratings and reviews, UpCounsel’s network of experienced lawyers guarantees high quality and cost-effective legal services.