The Nuts and Bolts of small business partnership agreement
While certainly rewarding, the road to owning your small business can be a lonely one. Small business owners often choose a sole proprietor business structure when starting up. Over time, you may realize that greater rewards may result from forming a business partnership with another individual or group. In fact, partnerships offer more freedom for business owners with shared business tasks and the potential to earn greater profits.
How do you create a winning small business partnership agreement? First, for a partnership to be successful, all parties involved must agree on the same strategic direction of the company. Most importantly, a strong partnership is built on an open communicating relationship.
In very simple terms, a partnership is a legal agreement between two or more parties wherein the parties agree to share profits and losses of a common business.
As we’ve acknowledged above, a partnership has many benefits but it also has some downfalls. Partnering with another company can be great when you’ve created a partnership agreement with the expectations spelled out. So, before heading into a partnership with another, make sure you’ve covered the finer points of a good partnership agreement.
See below the fundamentals of a good partnership agreement :-
⇒Agree on a name for the partnership.
⇒Decide the partnership’s purpose and objectives.
⇒Determine the start date and the duration of the partnership.
⇒Specify where the primary office will be located.
⇒Determine the meeting guidelines.
⇒Detail what percentage each partner will have in assets, responsibilities, and income.
⇒Agree and specify the contributions of each of the partners in capital and assets.
⇒Specify the limit of liabilities for each of the partners.
⇒Agree and specify entitlements and benefits for each partner such as insurance, time off and travel.
⇒Define each partner’s ability to redraw contributions and access loans from the business.
⇒Decide and state how profits and losses will be divided.
⇒Define the accounting year, accounting method and choice of auditor.
⇒Denote what the partner’s authorization is to sign binding agreements.
⇒Spell out the requirements for admitting additional partners.
⇒Define terms for expulsion, voluntary or forced withdrawal of a partner, death or incapacity of a partner.
⇒Determine the distribution of income and capital in event of dissolution, death, incapacity.
⇒Detail the terms of continuation of the partnership should a partner die or withdraw from the partnership.
⇒Define how debts and assets of the partnership are divided in case of withdrawal, incapacity or death of a partner.
⇒Establish the rights of the partnership name.
⇒Spell out the rights and usage of proprietary information should the partnership be dissolved.
⇒In case of disputes, determine what method of resolution will be used.
⇒Define the procedures for amending the partnership.
To create a great partnership you need to start with a great simple commercial lease agreement template word for partnership agreement. A good partnership agreement spells out expectations and helps prevents unrealistic or unreasonable assumptions. Also, when drawing up an agreement, it’s a good practice to have the help of an attorney.
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