Do I Need A Partnership Agreement?

Are Partnership Agreements Necessary?

You've decided to start your own business. It's clear that you have a vision, a business partner, and a bright eye for success.

In principle, you and your business partner have agreed on how to run the company. Any other matter will be handled as it arises. Good idea, right? It's unlikely.

Your business partner and you should document your agreement from the beginning - to cover the positive (like profit distribution) and the not-so-positive (disagreement resolution).

5 reasons to have a written partnership agreement

1. You and your business partners will have a clear understanding of the rules and arrangements governing your business relationship.
2. The business' profits and losses must be shared equally by all partners, unless an agreement is in place. It doesn't matter how much cash each partner contributes to the business, how much time each partner dedicates to the business, or how much revenue each partner brings in.

3. If there is no agreement in place, your partnership will be governed by the laws in effect in your state or territory. The legislation is a one-size-fits-all approach - your partnership agreement should be tailored to your specific relationship, intentions, and circumstances.

4. Partnerships may dissolve if minor disagreements become insurmountable problems. A clear, unambiguous statement of each partner's role and authority, as well as a dispute resolution procedure, can prevent this.
5. Your business can be focused on what it does best.

There's a good chance you started your business because of a passion. In the long term, a partnership agreement allows you to spend less time managing your relationship with your business partners and more time focusing on your business.

Your partnership agreement should include the following:

• How profits will be shared;
• The amount of money each partner contributes to the partnership business;
• The process for adding new partners;
• Removing partners from the partnership;
• Each partner's role and responsibilities, including decision-making powers and authority; and
• In case of a dispute, how to resolve it.