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What is the importance of a business partnership agreement?

On Behalf of | Jun 10, 2024 | Business Law

If you are considering pursuing a business partnership, creating a partnership agreement would benefit you. A partnership agreement could help define each party’s obligations and responsibilities and reduce potential challenges that may present themselves during the arrangement. 

Every partnership agreement is different depending on each business’s goals and expectations. Several key details may need to be discussed when creating a partnership agreement:

Define each party’s stake

A partnership agreement can establish how much of the business each party owns, which can also define how much they are expected to profit from it. A partner could help contribute more money to a business, which could increase the percentage of ownership. The percentage of ownership could also define how each party shares liability in the business and how much control each party has over major decisions.

Establish how long the partnership will last

A business partnership does not have to last forever. The agreement can specify that a partnership will end once the business reaches a certain milestone or number of years, at which point the agreement could be renewed with new terms. However, many partnerships leave this unspecified. 

Determine how profits and losses are divided

Each party intends to profit from a business partnership. It is often important to clarify how much each party will gain from a business’s profits. Yet, each party may also be liable for any losses the business may have throughout the partnership. 

Explain how disputes are resolved 

At any point in a business partnership, a dispute may arise between partners. This could be caused by anything from a simple communication error to a disagreement about management. The agreement could outline what should happen during a disagreement and how it is resolved if there is no resolution. 

As you begin to outline what you want from a partnership through a legal agreement, you may want to consider reaching out for legal help to learn about your options.

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