What should you include in your partnership agreement?

Often born out of family ties, friendships and other close relationships, many in Georgia and elsewhere forego creating written agreements when establishing business partnerships. Without setting down some rules and terms, however, even small disputes could erupt into significant problems that may impede your company’s operation. Taking the time to understand what elements to include may help you create a solid partnership agreement that sets your fledgling business up for success.

Whether in the form of monetary support, labor or other contributions, it is likely that you and your partners all bring something to the table. Although you may each be aware of what everyone is contributing, it can be helpful to specify in your partnership what each partner has put in. Additionally, you should set out how your business’s profits and losses will be distributed between the partners.

According to FindLaw, unless otherwise specified, one partner can make binding decisions for the entire partnership without approval from the other partners. For example, a partner could take out a loan for the business, thus incurring debt for all the partners. Therefore, it is important to establish the authority of the partners in your partnership agreement. Your agreement should specify each partner’s business making powers, as well as define how minor and important decisions should be made.

Even with clearly defined roles, disputes may sometimes arise between partners. Determining ahead of time how such issues should be dealt with may help you save money, as well as get back to the business of running your company. For example, you may include in your partnership agreement a clause dictating that mediation or arbitration be attempted prior to litigation.

The information contained in this post is intended for general purposes only and should not be considered legal advice.

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