When you are starting a new business with another person, it can be exciting, stressful and overwhelming. Many partners are so worried about getting the business started that they fail to establish the working relationship between themselves. You may not think you need a contract with your co-business owner because you trust him or her. However, having your agreements put in writing can help avoid legal disputes and preserve your relationship.
A partnership agreement is especially important in some states where it is not a breach of contract for a partner to withdraw from an oral partnership agreement. See Gelman v. Buehler. This means that if there are no specific terms or obligations outlined in the underlying agreement, the partnership can be dissolved unilaterally.
Below are a few essential terms to include in your written partnership agreement:
- The rights, duties and roles of each partner should be detailed in the contract. You should outline what each partner will provide to the business, whether it is time, money or other valuable contributions.
- The percentage of ownership should be detailed in your agreement. The contract should also cover how the business’s profits, losses and distributions will be handled.
- A partnership agreement must provide how much authority each partner has to bind the company and whether a partner must obtain the other partner’s consent before taking binding action.
- The management and operational duties of each partner should be listed and the contract should specify what actions require a majority vote.
- Dispute resolution requirements must be addressed in the partnership agreement. If you want to avoid litigation if disputes arise, you may want to consider including a provision that requires arbitration.
- Although you don’t want to think about your partnership ending, you should plan for it while your relationship is amicable. In fact, the dissolution process is much simpler and faster if our agreement has established the process to follow.
If you are interested in creating a partnership agreement or how we can assist you with your business-related needs, contact the knowledgeable lawyers at The Swenson Law Firm to schedule an appointment.
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