Depending on the complexity of business activities and the number of partners involved, partnerships can be complicated. The formation of a partnership agreement is a requirement in order to reduce the potential for complications or disputes among partners within this form of business arrangement. The legal document that governs the way a company is run and outlines the relationship between each partner is a partnership agreement.
Since each partnership agreement varies on the basis of business goals, certain terms, including the percentage of ownership, division of profit and loss, duration of the partnership, decision-making and dispute resolution, partner authority, and withdrawal, should be detailed in the contract.
Maybe a family member, long-time friend, investor, or business associate is your future partner. The start of a partnership, whatever the relationship, is just like a young romance.
The parties are euphoric, and it seems like nothing could go wrong, but then something happens. Time for an inspection of reality. Just like any private relationship has its ups and downs, so do company partnerships.
Your partnership agreement should address your particular business relationship and company operation. Again, there are no two firms alike. There are, however, at least 6 main conditions that should be included in any partnership agreement:
1. The Name of Your Relationship
A decision on the name of your company is one of the first things you and your partners can cross off your to-do list. The company name may represent the partners’ names or it may have a fictitious name.
The name of your company should be registered with your state in either case. If you have carried out a detailed search for the name you have selected, registration will ensure that no other organization with the same name exists and will prohibit anyone from using your name.
The name of your business relationship is a vital clause since the partnership and the business name under which the arrangement exists are clearly defined. This reduces ambiguity, especially when there are numerous collaborations and/or companies that may be involved.
2. Contributions from Collaborations
In most situations, the contributions of partners (time, money, and capital) to the organization differ from partnership to partnership. While some partners provide funding for start-ups, others may provide experience in operations or management. Specific contributions should be mentioned in the written agreement in either case.
Here are more samples of partnership agreements available at CocoSign. CocoSign enables digital signatures to be obtained and inserted into documents quickly and easily. Its streamlined workflow of electronic signatures will tremendously streamline business operations. Upon signing up for the official site, it offers a plethora of templates, repurchase agreements, rental contracts, deals, and contractual arrangements for free.
These samples give you a good idea to provide words that address planned contributions that might be appropriate before the organization really becomes profitable.
For example, if start-up investments are not sufficient to bring the company into a viable state, any provisions for additional financial contributions from each partner should be specified in the partnership agreement. For a key contributor, that avoids any surprises down the road.
4. Authority of Spouses and Decision Making Powers
In the success of the company, each partner has a vested interest. It is widely understood, because of this vested interest, that each partner has the power to make decisions and to enter into agreements on behalf of the company.
One can go for the partnership agreement samples available at CocoSign. All samples there are editable & specify the basic rules relating to the authority provided to each partner and how business decisions will be made if this is not the case with your business. You need to negotiate, decide, and record how business decisions will be taken in order to prevent uncertainty and to protect the interests of all.
There are several tasks to be done in the starting process, and some management functions can overlap (or may only require temporary oversight). Although you do not have to discuss the responsibility of each partner as it applies to every single aspect of your business activities, in a structured agreement, there are certain roles and obligations that you need to delegate and outline.
Due to their important and often sensitive nature, tasks, and obligations related to accounting, payroll, and even human resources are worthy of note in the relationship agreement. You will want to amend your agreement to reflect these essential managerial obligations, even though you have an established agreement.
6. Resolving Conflicts
As mentioned before, in any partnership, conflicts are inevitable. In business relationships, conflicts may become deadlocked and may even require mediation, arbitration, or unfortunately litigation. As a first (and ideally final) solution to business disputes, aim to avoid the time and expense involved with litigation by requiring mediation and arbitration.
There are several ways of settling conflicts, so alternate strategies for conflict resolution should be mentioned in your relationship agreement. When all heads are calm and open, the point is to formally define these methods of resolution in advance to be identified in the collaboration agreement.
We hope that this list of main clauses helps you see the importance of recording in a written agreement the purposes of your particular relationship, as opposed to leaving it to state law. Bear in mind that it is possible to change most agreements as much as appropriate. So, as your company evolves, your partnership agreement can change.
Under the agreement, you may also claim that at prescribed intervals or when deemed appropriate, review and revisions will be made. The most important thing is that you have a well-drafted document that embodies your basic intentions and meets your clear business priorities and goals.