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What should be included in a partnership agreement?

On Behalf of | Jul 18, 2022 | Partnership Agreements And Disputes |

Starting your own business in Texas can be very rewarding. If you do it with another owner, you might have to create a partnership agreement if that is the form of legal entity that you will be operating under. It’s important to include certain terms in your partnership agreement.

Percentage of ownership and assignment of profits and losses

All partnership agreements should include information about the percentage of ownership of each partner. This can also determine how profits and losses are distributed and allocated between the partners. Often, the more capital a partner contributes to the business, the higher their ownership percentage.

Duties as partners

One of the most important things to include in a partnership agreement is an explanation of each partner’s duties and responsibilities. There is no requirement that everyone be equal, so this should be spelled out for the sake of clarity. Terms should explain each partner’s level of authority, decision-making abilities and duties as managers. It helps to show that not all partners are equal as one might have a higher level of authority than the others.

Length of partnership

In business, it’s not unusual for a partnership to end over a certain period of time. Someone might decide they only want to be involved with the business for a set period of time and then move on. Or the business might be created to exist for a certain length of time and then dissolve. Whatever the case with your company, it’s important to include terms about the length of your partnership.

Dispute resolution

Sometimes partners run into a dispute about how to handle something related to the business. Having a term in your partnership agreement about that can help. For example, if you state that mediation should be used as the first resort, it can help settle disputes sooner and easier.