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Download partnership agreement template in Microsoft Word format.
Business Partnership Agreement: For Protection and Peace of Mind
Have you decided to choose a partnership model for your small to medium-sized business? Have you drafted a business partnership agreement to make this action legal and binding? A business partnership can be a great way to run a business, but without the proper forms, you may run into problems down the road. In this article we will highlight some of the more important factors when deciding to form a partnership and show you what type of information should be included in a business partnership agreement.
Choosing a Business Partnership: Is It the Right Idea?
While only 6 percent of all businesses are officially deemed as legal partnerships, this type of business ownership can provide a number of benefits. Among these are:
- Shared Responsibility
- More Freedom
- Collected ideas and vision
- Greater profits
However, before deciding to form a business partnership you’ll want to closely examine a few factors to see if you and your potential partner are compatible from a business standpoint. Some of these factors include:
- Vision. In order for a partnership to be successful, it’s vital that both of the parties involved share the same vision for the business. If one partner, for example, has ideas of expanding globally, while the other is content as a local company, the partnership may be doomed before it even begins.
- Roles. When many people enter into partnerships, they do so as a way to maximize the talents of each owner. For instance, in many partnerships, one partner runs the creative side of the business, while the other handles the business end. Partnerships such as these, where the roles of each party are clearly understood and agreed upon by both, have a much better chance of succeeding.
- Profit Sharing. While it may seem only fair to have each party share the profits 50-50, in reality this type of split seldom works. Instead, put away the ego and consider something like a 51-49 percent split to help prevent being deadlocked on certain issues and decisions.
The Business Partnership Agreement
Once you’ve come to terms with the vision, roles and profit sharing of your new company, your best bet is to put it all down in writing. Even if you are entering into business with your best friend or family member, and you feel like an agreement is unnecessary, keep in mind that business sometimes has a way of changing people. Remember, this step is for the protection of each party involved.
Some of the typical pieces of information that should appear on the business partnership agreement include:
- Initial investment of each partner
- Type and location of business
- Profit sharing, including the partners’ compensation
- How assets and liabilities will be distributed if the partnership is dissolved
- A clause that speaks of dispute resolution
- Restrictions
- Term of the Partnership—in years
- How assets and liabilities will be distributed in the event of death or illness
This document, when prepared carefully and signed by each party, will not only help put both of your minds at ease, it can also help legitimize your business when thinking of expanding or when seeking funding from banks and investors.