If you`re considering entering into a partnership with another party, it`s essential to have a partnership agreement in place. A partnership agreement is a legal document that outlines the terms of the partnership, including the roles and responsibilities of each partner, the distribution of profits and losses, and how the partnership will be dissolved if necessary. Here are some essential features that every partnership agreement should include:
1. Partnership Structure:
The partnership structure should be clearly defined in the agreement. This includes the type of partnership (general, limited, etc.) and the roles and responsibilities of each partner. It should also include how decisions will be made and how disputes will be resolved.
2. Capital Contributions:
Partners must agree on the amount of capital that each partner will contribute to the partnership. This should be outlined in the agreement, along with any conditions or restrictions on the use of this capital.
3. Profits and Losses:
The distribution of profits and losses should be clearly defined in the partnership agreement. This includes how profits will be shared among partners and how losses will be allocated. Also, it should specify how tax liabilities of the partnership will be apportioned among the partners.
4. Management and Decision Making:
Partnerships usually have more than one decision-maker, so it`s important to clearly define how decisions will be made. This includes who will run the day-to-day operations of the partnership and who will be responsible for making important decisions.
5. Dissolution:
It`s essential to have a clear plan in place for how the partnership will be dissolved, whether due to changes in circumstances or the decision of one or more partners to leave the partnership. This section should also specify how any remaining assets or liabilities will be distributed among the partners.
6. Non-Compete and Confidentiality:
Partners must agree to not compete with the partnership business during the partnership and for a certain period of time after the partnership. The agreement should also include clauses that protect the confidentiality of proprietary information.
A comprehensive and well-drafted partnership agreement can help avoid any conflicts among partners and provide a smooth pathway for dissolution or termination of the partnership. Therefore, it`s prudent to consult with a lawyer and an experienced CPA to draft a partnership agreement.