Business Law 101: Why You Need a Partnership Agreement

If you are thinking of creating a business with another person, you need to consider drafting a partnership agreement. The enthusiasm that comes with creating a new business can make it difficult to figure out details that may seem mundane, however, creating a partnership (or shareholders) agreement early in your new business venture can provide short and long term benefits for everyone. Here’s how these agreements can help you:

  1. You figure out everyone’s roles.

It’s helpful to decide early on who will perform which roles for the company. This allows you to assess things like who is an employee versus who is an investor. Plus, when each partner specifically explains what he or she plans to do, you can decide if there are any other employees that you will need to hire.

Also, the partnership agreement can be used if one of the business partners is not performing the role he or she promised. Perhaps upon reading the original wording of the agreement, the individual will step up and work as promised. The alternative is that the partnership agreement can be very helpful if you ever have to go to court.

  1. Everyone commits to what will be provided or invested into the business.

The benefits of this are very similar to the benefits of assigning roles. By clearly communicating what each person plans to bring into the business, you can see what is being provided and what still needs to be covered. You can ensure that the start-up expenses are shared equally. Also, if something ever goes terribly wrong and the business needs to be dissolved, you have written documentation of who brought what to the company so everything can be divided fairly.

  1. You figure out how profits (and expenses) are shared.

Hopefully you will be wonderfully successful and your most difficult question will be, “How are we going to spend all this money?!” But no matter what your reality is, you need to have a plan. It’s important to understand which partners are employees or investors. Also, you will want to talk about profit sharing. Before your business begins, you will want to know when and how people (including you) get paid.

  1. Disputes should be easily settled.

In theory, a thorough partnership agreement explains everything, including the conception of the business and the day-to-day operations. When disputes arise, partners should be able to refer to the partnership agreement to prompt a solution.

If there is no solution suggested by your partnership agreement, you’re probably going to wish you had created your partnership agreement with the help of a lawyer. A weak agreement often means the disputing partners will be consulting with lawyers. This causes a greater expenditure of time and money for everyone.

Don’t let this happen to you. If you’re in Florida, contact Cove Law to help you create your partnership agreement. Take the time to meet with your associates and our professionals to help answer any questions and smooth out any details before your life is complicated by your new business. Give us a call today at (954) 921-1121.

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Written by Andrew Cove

Cove Law has significant experience defending federal investigations and formal actions by the Federal Trade Commission, the Consumer Finance Protection Board and the U.S. Department of Justice, as well as similar matters on the state level by the respective state Attorney General’s Offices and other local agencies.