Legal: Partnership Agreements

Forming a partnership, even when with a trusted friend or colleague, should be done so with the foresight to protect yourself and your new joint venture. By formally setting the rules of the partnership at the formation of the business, you are setting your business up for success. A well drafted Partnership Agreement anticipates the issues that may arise in the future and sets expectations for each partner early on. By being proactive, you and your partner can avoid years of disputes and legal battles that can destroy the business if the partnership falls apart. Below is a short list of the key elements of any Partnership Agreement.

CONTRIBUTIONS AND PERCENTAGE OF OWNERSHIP

Each partner does not have to own an equal percentage of the business. Generally, a partner’s ownership interest is decided based on what he contributes to start the business. Partners may bring different assets to the business whether it be a capital investment, special skills, or the ability and willingness to run the day-to-day operations.

ALLOCATION OF PROFIT AND LOSSES

You are in business to make money. Set clear guidelines that state when a partner may take a draw, when profits will be distributed, and what percentage of profits each partner will receive. Likewise, agree on what percentage of losses each partner will be responsible for in the event your joint venture takes a loss.

AUTHORITY OF PARTNERS

Generally, any partner can bind the business to a contract or debt without the consent of the other partner(s). Place limitations on each partner’s authority in the Partnership Agreement.

DECISION-MAKING

Not all decisions for the business will be unanimously agreed upon by all partners, nor should you necessarily place this requirement on your business. Establish a system for making business decisions that will allow the business to continue to run successfully and inefficiently.

WITHDRAWAL, DEATH OR DISABILITY

In the unfortunate event that one partner chooses to leave or is otherwise incapacitated, your partnership agreement should contain a buy/sell agreement that outlines a reasonable buyout scheme.

DISPUTE RESOLUTION

It is possible that major conflicts may arise between the partners whenever there are different opinions on the best way to operate the joint venture. It is often beneficial to agree to handle disputes through mediation or arbitration rather than taking the disputes to court.

The above is not an all-inclusive list, so please contact our in-house business law attorney, Michael Burnett at 678-905-4450 Ext. 106 for your consultation or email him at mburnett@msb-law.com.

Michael Burnett works in partnership with Wiser Wealth Management, Inc as in-house legal counsel to Wiser clients.

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