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What should you have in your business partnership contract?

On Behalf of | Mar 31, 2022 | Business Law |

When you establish a new business partnership with someone else, you want to lay a strong foundation down from the very start.

This means understanding how business partnership contracts work and setting up one that will set you up for success.

Ownership and decision-making clauses

Forbes takes a look into what you may need in a partnership agreement. First, you always want to include the basics. This includes a description of your business, the business name and any contact information for business partners and owners.

It is also important to cover the potential scenarios and decisions that you may end up encountering at some point in the lifetime of the business. Specifically and at the very least, it is important to include clauses for some of the following.

Ownership clauses address who owns what part of the business. The most common way of expressing this is through percentages.

Decision-making clauses determines how many decisions are unanimous and how many pass by majority. It also determines the weight of each vote, such as weighing by percentage of ownership. This clause should allow no room for partners to question decisions after they get made.

Clauses for distribution and partnership switches

Profit and distribution clauses discuss how to allocate any losses and profits to partners. It shows when partners gain payment for their contributions, as well as when and how they get their share of pay.

Finally, clauses for the withdrawal or addition of a partner address what to do when a partner wants to leave the business, or when partners wish to bring an additional person on board. Together, these clauses will potentially address most issues, hurdles or questions that may arise in the future.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin