Are you looking forward to starting a business? Do you want it to be a partnership firm rather than sole entrepreneurship? A partnership agreement is a must if you are willing to pool money together with two or more partners.
Here is everything you need to know about a partnership agreement.
What Is a Partnership Agreement & How It Works?
A partnership agreement is a contract between two or more partners or businesses that have decided to run a business together. Each individual in a partnership agreement brings a desired amount of money to start a business.
Thereafter, the partners share the business profits in a desired profit-sharing ratio. A partnership agreement outlines the initial and expected contributions made by each partner. It also mentions the business decisions, the purpose of the business, and other essential things to consider.
A partnership agreement is a legal document. For it to work, all the partners have to agree to the terms and conditions mentioned in the agreement and append their signatures to make it legal. Firstly, you need to create your own partnership agreement or use a partnership agreement template.
Once prepared, it is to be sent to all partners individually for signature collection. Once signed by all the partners, the partnership agreement is completed.
What Should Be Covered in a Partnership Agreement?
There are a lot of things that should be covered in a partnership agreement template. A valid partnership agreement should at least contain this information:
- The name and addresses of all the partners
- Legal name and address of the business/partnership firm
- Description of the partnership firm
- The date at which the partnership firm is formed
- The number of employees in the partnership firm
- The date of dissolution (if any)
- The percentage of ownership of each partner
- The amount contributed by each partner
- The terms of a partner leaving the firm
- The terms related to the partner’s death
- The profit-sharing ratio among partners
- The voting rights and liabilities of the partners
When Is a Partnership Agreement Needed?
A business partnership agreement is needed when more than two people decide to start a business together. To avoid disputes among partners, a written partnership agreement is needed that lays down the terms and conditions of the partnership.
This general partnership agreement acts as proof and helps resolve matters arising out of the difference of opinions in the future.
It is like a reference document you can take the help of while making business decisions. It helps arrive at a straight conclusion with all the information on contributions, profit ratios, responsibilities properly listed.
How To Write A Partnership Agreement?
Writing a partnership agreement may require you to follow the desired format of a partnership agreement. It should be written such that the terms of the agreement are explanatory.
Above all, it should contain all the necessary information like the starting date of partnership, name of the partnership, contributions made, authority of partners, etc.
You can use our CocoDoc free printable partnership agreement template if you are unsure how to write a perfect partnership agreement. Our partnership agreement template is easy to download and use. You can also get it customized according to your needs.
Moreover, ready-to-use templates are easier to share through email, and edit. You can even get them signed by each partner electronically.
How many types of partnerships are there?
There are basically three types of partnerships: general partnership, limited partnership, and limited liability partnership.
In a general partnership, the liabilities of all partners are unlimited. In a limited partnership, not all but a few partners have limited liabilities. In a limited liability partnership, all the partners have limited liabilities.
Do I need a lawyer for a partnership agreement?
It is recommended to hire a lawyer to prepare a partnership agreement considering the interests of all the partners. A lawyer also guides you through the dissolution process. Alternatively, you can also choose to download a partnership agreement from CocoDoc, and customize it as per your requirements.
What are the main benefits of using a partnership agreement?
There are several benefits of using a partnership agreement like:
- Written proof of who owns the business,
- Advantage of having solutions in hand in advance on serious matters like dissolution, profit sharing ratio, the process of removal of partners etc.
- Specifies and protects the rights and liabilities of minority partners
- Protects the investment of the business and partners
How to make a partnership agreement legally valid?
To make a partnership agreement legally valid, you should get the contract signed by all the partners.