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What are the must-have features of a partnership agreement?

On Behalf of | Apr 30, 2024 | Business Law |

Business partnerships are a great way to combine resources to achieve mutual goals. These collaborative ventures are typically run in accordance with partnership agreements, which serve as the blueprint for the partnership’s operations.

Here is what you can consider including in your partnership agreement:

6 essential partnership agreement features

If you are considering a business partnership, it’s essential to establish a comprehensive partnership agreement that includes the following must-have features:

  • Identification of partners: The partnership agreement should list the names, roles and responsibilities of all partners involved, providing clarity on each party’s involvement and stake in the partnership.
  • Capital contributions: The contributions made by every partner should be clearly defined in the partnership agreement, ensuring transparency and accountability regarding financial resources.
  • Profit and loss sharing: The agreement should also specify how profits and losses will be distributed among the partners, outlining the percentage of profits each partner is entitled to and the method for allocating losses.
  • Decision-making processes: Since the business is a partnership, a clear framework for decision-making is essential. The partnership agreement should outline the procedures for making major decisions, including voting mechanisms, appointment of managing partners and dispute resolution methods.
  • Termination: The agreement should also address the circumstances under which the partnership can be terminated, including procedures for dissolution, distribution of assets and exit strategies for partners.
  • Ownership: Each partner owns a specific percentage or share of the partnership, which should be clearly defined in the partnership agreement. This ensures clarity and transparency regarding each partner’s ownership stake in the business.

Depending on the business, a partnership agreement can also cover non-compete clauses, confidentiality, intellectual property and dispute resolution, better ensuring comprehensive protection and smooth operation.

Partnership agreements are legally binding documents that govern the rights and obligations of partners. Seeking guidance from legal counsel can help ensure that your partnership agreement is drafted accurately and in compliance with relevant laws and regulations. 

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