Where Others See Obstacles, We See Opportunities

  1. Home
  2.  → 
  3. Business law
  4.  → 3 elements you must never omit from your partnership agreement

3 elements you must never omit from your partnership agreement

A business partnership can be complex, particularly when a business has a lot of facets or there are multiple partners involved. To reduce potential conflicts, it is important that there is a clear and acceptable business partnership agreement in place. This is a legal document that outlines how the business will operate. It also details how the partners will relate to each other. 

While partnership agreements vary based on business goals, certain clauses must never be omitted from the document. Here are three important provisions that you should strive to include in your partnership agreement:

1. Each party’s contribution to the partnership

Partnership contributions (finances, time and other resources) to the business may vary depending on the purpose of the partnership. While one partner may offer the start-up capital, the other may come with managerial or operational skills. 

It is important that each partner’s expected contributions are clearly stated in the agreement – along with the consequences if they don’t live up to their obligations.

2. Profit and liability allocations

Partnerships are formed with the hope that the business will make profits. It is important that your agreement clearly indicates how and when such profit shall be shared. The agreement should also address how losses will be handled in the partnership. 

3. Decision-making powers

Each party gets into a business partnership with certain vested interests. As a result, it is expected that each partner will have the power to make certain decisions regarding the operations of the business. 

A good partnership agreement should articulate the powers vested on each party when it comes to partner authority and decision-making powers, including how major disputes will be decided.

A business partnership offers a host of benefits to the parties that are signatory to it. However, to be effective, a partnership agreement must contain certain vital clauses. It’s wise to have experienced assistance as you develop your agreement.