Partnership Agreements are critical for anyone entering a business partnership. These documents detail key terms including your obligations, ownership, decision making power, and options for exit – all of which you want cemented well before you supply any capital.
Here are our 3 best tips for developing robust partnership agreements:
1. Document your arrangement regarding partner contributions and ownership
Under Californian law, you and your partners are deemed to have equal share in the partnership in the absence of any written agreement.
Contributions, ownership percentage, and division of profits and losses should be determined and documented long in advance of any assets entering the partnership pool or liabilities being incurred. This can help to minimize the potential for and impact of any future disputes.
2. Agree on a partner’s ability to incur partnership debt
Unless otherwise outlined in a robust partnership agreement, you will be personally responsible for the debts, loans, or other obligations of the partnership. This includes any liabilities that your partners incur – even when this is done without your knowledge or consent.
Your partnership agreement should be explicit in outlining the circumstances in which a partner is permitted to unilaterally incur liabilities or enter into contracts.
3. Determine decision-making powers
Your partnership agreement should detail how decisions will be made by the partners and the process for resolving any disputes. You can outline how much weight each partner has in decision making, the process for making decisions, and dispute resolution mechanisms.
Determining these in advance will save time down the line and can save money in the event of a dispute or falling out.
If you need assistance with your partnership, don’t hesitate to reach out. We’re here to help!
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