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What should your partnership agreement address?

On Behalf of | Oct 15, 2021 | Business Formation

Working with a partner has many benefits that you should consider when launching your business venture. You can work together to share important duties and you will have twice the brainpower to work out complex problems.

However, you will need a foundational document that will determine what your partnership looks like. This document will change based on your needs, but on average, you should address three specific topics.

Who has key responsibilities?

Forbes discusses how forms of partnerships can suit different business needs. You can change the details and language to suit your specific partnership and the goals you set, but you should always focus on three primary topics. Decision-making duties, profit and loss division, and ownership.

When setting up your agreement, you first have to decide who will hold the authority for making the big decisions. Obviously, both partners will have a say, but whose word will act as a tiebreaker? Who has the authority to act on their own, if either of you does? How will you manage any potential disputes that may arise between the two of you? You want this all worked out before you get into any sticky situations.

How do you divide assets and debts?

Profit and loss division includes how you will split the profit in the event of a successful business, and how you will split losses in the event that the venture fails or falls into the red at any point. You should also note what will happen if a partner withdraws or dies.

Finally, you have ownership. You can divide ownership based on contributions to the business venture, though this will not always end up equaling out. You and your partner can define ownership between the two of you, which should keep things progressing smoothly in the future.