Starting a new business can be a challenging and exciting process, and finding a business partner to do it with can make it even more rewarding. But even if your new business partner is someone you know and trust, it’s important to have clear terms outlined in your business partnership agreement.
This will help set terms and establish parameters and could prove to be an important resource in the event of a disagreement. Our business partnership agreement template is a simple way to help guide you through the process.
What Is a Partnership Agreement and Who Should Have One?
A partnership agreement is a contract between two or more business partners. The agreement is used to outline the rights and responsibilities of partners, profit and loss distribution, withdrawals, capital contributions, and financial reporting.
A business partner could be an individual, a corporation, or another business entity, and the agreement should specify exactly who the business partners are.
It’s a good idea to have a business partnership agreement drafted and signed whenever two or more people or entities decide to go into business together, especially if the partners plan to share in the profits and losses. Using our partnership agreement template is instrumental in pulling the necessary information together in a clear and concise manner. It acts as a formal agreement that outlines a clear intention to become a partnership under the eyes of the law.
Why You Need a Business Partnership Agreement
Technically, it’s not required to have a partnership agreement to run a business or enter into a partnership with someone, but it’s a smart move to draft one and have it signed. Without a partnership agreement, your business will be subject to whatever statutes exist in your state, which might not suit your particular business partnership.
By creating your own agreement, you can customize and outline exactly what you need to and what applies to your specific arrangement. They also help to avoid any disagreements or issues in the future of the partnership, especially when it comes to obligations and liabilities.
Even if the partnership is between family members, it’s always ideal to have an official document outlining how the business is going to be managed and how issues should be resolved.
Types of Partnership Agreements
There are a few different types of agreements depending on the business’s management structure, liability implications, taxes, and investments. These are:
General: A general partnership is the most common type where each partner is equally responsible for the business and liable for the debts and obligations that might incur. It involves mutual responsibility.
Limited: This is where one or more partners might have limited liabilities for the debts and obligations of the business, compared to other partners who might be more invested and responsible for the debts and profits. Usually, the liability of a partner is in proportion to their investment input.
Limited liability partnerships: This is a special type of agreement that is used in high-risk settings. It involves a general partnership where all partners manage the business but have limited liability for each other’s actions, including any wrongdoings.
What Does a Partnership Agreement Include?
A general partnership agreement template should include the following basic information:
- Who are the partners
- Contributions and investments made by each of the partners
- When the partnership begins and ends
- The purpose of the partnership
- Dispute resolutions
- Partnership withdrawal or dissolution
Then, a partnership agreement should go into more detail about the following aspects, depending on the specific arrangement you want/have:
- Management of the business, including meetings, responsibilities of partners, voting method for decisions, and maintenance of records
- Accounts and finances, including the distribution of profits and losses, taxation, responsibility of financial reports and audits, and bank accounts
If you’re planning on entering a business partnership with another individual or for-profit entity, then you’ll want to use this business partnership agreement template to draft your own official agreement. Check out our other business tools and resources to help get your business started on the right foot.