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What should you include in your partnership agreement?

A partnership agreement is not a requirement to start a new business, but if you are thinking about forming a new business partnership in Texas, or if you have a partnership already established, you should think about drawing one up. According to FindLaw, establishing your own rules by which to govern your business prevents the state from imposing a set of default one-size-fits-all rules upon you. Furthermore, making your own partnership agreement allows each partner to know where he or she stands and what expectations he or she must meet, which may help prevent minor problems from escalating into major disputes. 

One of the most basic items to include in your partnership agreement is the name of your business. You may use a fictitious name for your company, as long as it is not already in use, or you may name it after the partners involved. In either case, your partnership agreement should also include the following information.

Dispute resolution

It is a good idea to be proactive in spelling out how you will resolve any deadlocked disputes that may arise between partners. Specifying a preference for a method of alternative dispute resolution, such as mediation or arbitration, over litigation could potentially save you money in court fees. 

Partner withdrawal or death

At some point, one or more partners may pursue other endeavors and wish to leave the company. Even if this never happens, a partner could die, or an accident could result in disability so severe that a partner is no longer able to participate in running the business. Your partnership agreement should contain plans to deal with each of these contingencies.

Business decision-making powers

Individual partners can make minor business decisions unilaterally, but for major ones, some sort of democratic process involving all partners' input is in everyone's interest. 

This list of what to include in your partnership agreement is not all-inclusive, nor is the information in this article intended as legal advice. 

 

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