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What should I include in my business partnership agreement?

Every business partnership in Westminster, California is different. Because of this, there is no one-size-fits-all approach to deciding what each partnership agreement must entail. Even so, having even a standard partnership agreement in place helps to make things easier as you set up a business, operate it together and if the partnership dissolves.

Business partnership agreements often do not cover all the important topics, because there are some issues on which partners disagree or do not feel comfortable discussing. This is all the more reason to tackle them. Here are four of the main ones you may want to include in your agreement.

Ownership

Ownership in a partnership may change for a number of reasons. This might be due to a partner leaving or another one joining the fold. How will ownership change when that happens? Is there a procedure in place for buying the other party out? What about a non-compete clause for withdrawing partners? According to Forbes, these are important questions that should not be ignored.

Contributions

Business partnership agreements often detail the amount of financial stake each owner has in the business. However, time is also money. Because of this, detailing the amount of time, effort and involvement required of each party is also important.

Distributions

Business partners may agree that they are all in business to make money, but they may not always agree on how much each partner gets to take home. Remember to take into account all contributions when deciding on a dollar value or percentage amount. If a partner will be paid a salary instead of a larger percentage for his work, you may want to include this as well.

Dissolution

Unfortunately, many partnerships end in dissolution. Planning ahead may help to ensure a civil departure. Decide early on what the proper procedure will entail. Think of this in the way you might a prenuptial agreement for a high-asset marriage.

Partnership agreements are not always easy to draft. This may be the first time you realize how much you and your partner differ on core aspects of the business. However, better to tackle that early on in the business honeymoon phase than at the point of dissolution or withdrawal, when the business relationship may have soured.

This article was written to educate business partners on some important issues that are worth considering when creating a partnership agreement. It should not be interpreted as legal advice.

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