Things You Should Definitely Include In Your Partnership Agreement
A partnership agreement is the heart and soul of your partnership. It is the skeleton, the backbone, and the rulebook, for how your partnership will operate. It keeps you legally safe, with all partners knowing exactly what their rights and responsibilities are and in the event there is ever a lawsuit related to the partnership, it is that partnership agreement which the court will look to, in determining who is right and who is wrong.
That’s why it is so important that your partnership agreement be comprehensive, and cover everything it needs to cover. Here are some things that many partnership agreements leave out—especially ones that are just downloaded somewhere, or which are “one size fits all” type agreements.
Duration and Dissolution– How long will the partnership last? Does it have a definite term? Or does it dissolve upon a happening or an occasion? Do all partners need to consent to dissolving or ending the partnership or just a majority?
Salaries – Salaries are different from distributions made from the money the partnership makes, so they need to be separate in your agreement. And, it should be stated whether salaries are an expense (meaning that partner’s distributions of profits are calculated after the salaries are paid).
Employment – Remember that being a partner is different than being an employee of the partnership. You may be both a partner, and the partnership’s accountant. If you are fired from your job as the accountant, are you still a partner, entitled to partake in your distribution of partnership profits?
Involuntary Partners – Partners die and relatives can inherit their part of the business. Partners may declare personal bankruptcy, leaving their share to a bankruptcy trustee. They get divorced, and their partnership interest gets left to spouses. What happens then? Will the partnership dissolve, or buyout the unwanted partner?
Capital – You probably already knew to include the capital that each partner will contribute in your agreement. But what if additional capital is needed? Who will contribute that capital, and what will be the consideration for any additional contributions that may be needed in the future? If a partner voluntarily leaves the partnership, it should be clear whether or not that partner can withdraw his previously given capital.
Authority – Which partners have authority to sign on behalf of the partnership, and bind it to legal contracts?
Emergencies – In the event of an emergency, what are the procedures for getting things done? Remember that you may not have the ability to take a formal vote, or even meet in person, after something like a natural disaster. What are the procedures for safeguarding property, or keeping the partnership operating in an emergency?
Amendments – Over time, it may be necessary to alter or amend your partnership agreement. Who has to agree to that? Can a majority of partners alter it, or do all partners need to consent?
Do you need help drafting or reviewing your business or corporate documents? Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954 440-3993 for help.