A business partnership agreement is a contract between partners in a partnership which sets out the terms and conditions of the relationship between the partners, including: percentages of ownership, distribution of profits and losses and a description of management powers and duties of each partner.
Entering into a business partnership can come with conflicts and misunderstandings between you and your new partner or partners.
Having a written agreement that clearly outlines your rights and responsibilities is important for maintaining a healthy business relationship between partners. Some areas may seem simple or irrelevant to a business agreement, but it can be beneficial to include smaller points to avoid issues in the future. Here are some key areas to include in your partnership agreement:
Name of partnership: agree on a name for your business.
Contributions to the partnership: work out and record how much each person initially contributes to the business, whether it’s cash, property, or services, and decide what percentage each owner will have.
Admitting new partners: agree on a procedure for admitting new partners so that you can equally decide on a new person.
Distribution of profits/allocation of losses: decide how profits and losses are allocated to partner shares.
Partnership decision-making: to avoid conflict when it comes to making unanimous or individual decisions, set up a decision making process that everyone is happy with.
Death, disability, or withdrawal: if a member of the partnership wants to withdraw from it, or is forced to due to death or disability, then a buy/sell agreement is needed to manage the situation. Consider who you trust to make decisions on your behalf, who would inherit the shares of your company etc.
Resolving disputes: to deal with situations where you and your partners can’t agree on something, set up a mediation clause where everyone can agree on a procedure to resolve major conflicts.
Management duties: work out some guidelines on how the business will be managed. This can include who is responsible for dealing with customers, supervise employees, manage bookkeeping, negotiate with suppliers, etc.
Partner time off: work out how leave will work, including paid and unpaid sick leave, vacations, annual leave etc.
Non-competition clause: if you’re concerned about a partner leaving and then competing with the partnership’s business, you can include a clause that restricts them from doing so within a defined time period.