Partnership agreements are key to minimizing litigation risks

On Behalf of | Sep 28, 2018 | Business Law

When you have a business idea, it may be tempting to join forces with another individual who supports it. They may be a business associate, a friend, an investor, a family member or anyone else willing to commit financial, logistical or some other type of support to get a concept off the ground.

While in the planning and honeymoon phases of a partnership, things may seem to be moving in the right direction but then things may eventually take a turn in the wrong direction. This is why it’s important to have a partnership agreement in existence between the two of you.

There are some key elements that it should discuss.

First, you’ll want to make sure that it clearly outlines what percentage of ownership each of you retains. This may be reflective of how much each of you contributed financially to get operations underway. Alternatively, you two may decide that a partner who puts in sweat equity or more labor but less cash deserves a larger share of the business. Whatever you two decide, it’s important to put it in writing.

The partnership agreement should also detail whether the partners are able to enter into binding contracts without first receiving consent from the other. When deciding how to handle this, you two may first want to understand how liabilities one partner takes on could potentially affect the other and how they can adversely impact the business as a whole.

Deciding and documenting how profits and losses will be allocated is also important. For many partners, these correspond to the percentage of ownership they each have in the partnership.

Documenting whether both partners are allowed to take draws from the profits is also critical. So, too, is deciding what happens with a partner’s interests in the partnership if they die.

It’s also important to have a clearly defined plan for resolving disputes if a conflict arises between the two of you. You two may choose to resolve them in mediation or in the courtroom instead.

Having a partnership agreement in place is important because it gives you two the confidence to focus on growing your business venture without having to concern yourself about whether your investment of time or finances is protected. It can be beneficial to have an Augusta business law attorney who has experience litigating hotly contested partnership disputes to help you draft your agreement so that no stone goes left unturned.