What is a Partnership Agreement?

A partnership agreement is a written contract between two or more parties that helps protect their interests when they go into business together.

Who needs a partnership agreement?

If you’ve decided that a partnership is the right way to structure your business, then you absolutely need a partnership agreement.

Why do you need a partnership agreement?

As you’ll be sharing ownership, resources, risks and decisions with your partners, getting the terms in writing helps ensure all parties are on the same page from the start.

The agreement offers all partners certain legal rights and protections should something go wrong in the future, as well as a way to work through any disputes.

Having a formal partnership agreement can be the foundation of a solid business relationship, so take the time to do it right.

What’s included in a partnership agreement?

The agreement needs to clearly set out all the terms of your business relationship. It should include:

• The purpose of the partnership and details of all the partners
• Rights, obligations and responsibilities for each partner
• Sharing of capital, assets, property, profit or losses
• How liability will be apportioned
• Dispute resolution
• A procedure to end the partnership

How do you enter into a partnership agreement?

As with any business agreement your lawyer is the best person to draw up a legally binding partnership agreement.

Before you meet with your lawyer, it’s a good idea to get together with any potential partners and talk through how you’d like your partnership to look and how your business will run day-to-day. This is your opportunity to agree on all the big and little details before your lawyer draws up the agreement.

Remember…

Going into business with a partner has obvious benefits. If you decide it’s the best option for you, make sure you spend time and energy creating a clear, explicit partnership agreement. If you and your partner(s) are on the same page, it will make running your business affairs much easier.

Wondering what else you should consider when purchasing a business? Check out our ultimate guide on how to buy a business.