5 Important Issues to Address in Your Partnership Agreements

When starting a business with a partner, it can be tempting to just take things a day at a time without any formal agreements. In most cases, this will go quite smoothly for a little while. At some point, however, disagreements or situations will arise that can’t be ignored. This is when having a partnership agreement in place can save you a lot of trouble. From the very start of a new partnership, an agreement should be put in place. If you’ve already been working together for a while without one, creating a partnership agreement as soon as possible is advisable.

Each agreement will be unique, but they should all cover some specific issues. The following five topics should be addressed, along with any other situations that one or multiple partners is concerned about:

Financial Obligations

When running a business, there will typically be certain financial obligations that need to be met. This could be up-front capital to buy supplies, to buy real estate, to pay rent on a property, or any number of other things. When it is necessary to have money added to the business, this part of the agreement will address how it is to be done. Who will put up the money, how it will be  determined if/when money is needed, how the money will be repaid, and many other questions should be covered in this section of the agreement.

Division of Work

Running a business is a lot of work, and one of the biggest conflicts that can occur is having one partner taking on a disproportionate  amount of the work. By deciding ahead of time who is responsible for what work, conflicts can be avoided. This part of a business agreement can even lay out steps to take in the event that there is a disagreement on how much work is being done by a partner, or how the work is being done.

Income (Division of Profits)

The goal of every business is to make money for the owners. Deciding how the profits of a business should be distributed is critical. Will each partner take a weekly paycheck of the same amount? Does one partner get more? Are the profits (or at least a portion of them) reinvested into growing the business? There are many questions that need to be answered about the division of profits within a partnership agreement.

Death or Incapacitation of a Partner

In the event that one of the partners dies or becomes incapacitated, what should happen? While most people would agree that the business would continue to run and help support that partner (or their loved ones), this isn’t always possible. The business partners should look at the situation objectively and decide what can be done. Will the ownership of the partner who has passed away transfer to their spouse? Will it be transferred to the remaining partner(s) with some type of compensation going to the spouse? Taking the time to think about these issues will help to avoid difficult problems from coming up during an already difficult time.

Options for Exiting the Partnership

Whether it is a year down the road, or decades, eventually one of the partners is going to want to exit the partnership. This could be for retirement, or just because they are ready to move on to new opportunities. When one partner leaves, it can be devastating to the business if it isn’t handled properly, which is why it is so important to have it covered in the partnership agreement.

We’re Here to Help

If you need a partnership agreement written up for your business, or you would like an existing agreement modified, please don’t hesitate to contact Trembly Law Firm. We will be happy to take the time necessary to have an agreement created or updated so that it addresses all necessary situations, and provides excellent protections to the partners as well as the business.

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Written by Brett Trembly

Brett Trembly

In the South Florida legal community, Brett sits on the Board of the South Miami Kendall Bar Association, the Florida Bar 11th Circuit Grievance Committee, volunteers on the Florida Bar Young Lawyers Division Mentoring Program, the Dade-County Bar Associations Rainmakers Committee, and annually volunteers for Miami-Dade County’s Ethical Governance Day.