Partnership agreements are a very common occurrence in business’s where people come together and work as partners. They share resources, expertise, and responsibilities, and sometimes even venture into some non-profit-seeking businesses in unison. Whether you are establishing a small business with a friend, embarking on a joint venture with a strategic ally, or even simply pooling resources to pursue mutual goals with fellow professionals, a business partnership agreement can be an excellent route for growth and protection. These agreements can effectively protect a partnership from disputes and misunderstandings by setting out clear guidelines and expectations.

Read more to learn how a partnership agreement contract could be right for you.

1. It Outlines Specific Financial Provisions

A partnership agreement further helps outline the sharing of profits and losses among the partners. Without an agreement on these aspects, the partners may disagree on how to share the returns from the venture, or even how losses would be shared if the business goes down.

The agreement typically indicates the percentage of ownership, distribution of profits, and sharing losses. This structure ensures equity and transparency, such that all parties may understand financial interest. It also provides a basis for solving disputes when one feels financially impacted because the agreement was not respected.

2. Shielding Personal Assets

In many ventures, personal assets will be at risk if the company has debts or lawsuits filed against it. A partnership agreement contract cannot prevent this entirely, but an agreement can include provisions that limit liability or place some definitional boundaries on the limits of personal assets to be used for business debt settlement.

3. Outlines Conflict Resolution Mechanisms

Some level of disagreement is normally inevitable in any business partnership, whether such disagreements are a result of business decisions, financial distribution, or differences in their vision of the future for the company. A good partnership agreement will provide mechanisms for resolving and preventing such disputes from escalating.

The business partnership agreement may also include a method for resolution, for example, mediation, arbitration, or even a structured buyout option in case the partners are unable to reach an agreement. In this manner, it saves time, money, and stress, by providing a clear path for the resolution of disputes fairly and effectively without having to go through expensive litigation.

4. It clarifies the Decision-Making Process

A partnership agreement ensures that, first of all, there is a clear decision-making process. In case an agreement is not in place, then decision-making can become chaotic or contentious, and there would be no clear knowledge of who has the final say on major matters.

The partnership agreement may state whether decisions are made unanimously, or if certain partners have the power to veto certain matters. It may also set how disagreements are to be handled or how votes are to be weighted depending on percentages of ownership or areas of expertise. This could work in streamlining operations to produce decisions in a timelier manner that will not waste time.

5. Defines Exit Strategies and Succession Plans

While every partnership hopes for long-term success, circumstances can change, and business relationships may have to end. A partnership agreement therefore should provide room for this possibility by outlining exit strategies involving the partners.

The partnership agreement contract can also state succession plans, meaning what would happen in case one of the partners died, became incapacitated, or for other reasons, could not perform his or her role. It is very helpful for family-owned businesses and those with long-range visions.

6. Facilitates Business Continuity

This is because with the partnership agreement, even with one of the partners leaving or becoming ill or even dead, the business can continue uninterrupted. Through placing provisions to transfer ownership or management roles, a partnership agreement can help ensure that such a business continues uninterrupted and unscathed. This is particularly important to clients, customers, and employees who rely on the continuity of business.

Wrapping Up!

Whether you are launching a new partnership or cementing an existing one, it is wise to get a legal professional to help you with your business partnership agreement. They can structure it according to the specific needs of your business, and ensure protection down the road. Get in touch with Outsiders Law, their lawyers would be happy to assist you!

For more info, visit: https://www.outsiders.law/practice-areas/business-partnership-agreement