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What should go into a partnership agreement?

On Behalf of | Jan 11, 2023 | Contract Law

Making a partnership agreement is a very good idea if you’re starting a business with someone else. There’s no guarantee that things are going to go smoothly. If you decide to end the working relationship, the partnership agreement can help you understand how to do so.

That being said, there are a lot of different things that need to go into a partnership agreement in order to make the relationship strong and, ideally, keep the two of you working together for a long time. Here are a few areas to address.

How do you resolve a dispute?

It is wise to assume that disputes will happen. They don’t have to end the business. Your partnership agreement can specify how the two of you should work toward resolution or what steps you need to take. Planning in advance is much better than trying to react in the moment.

How much do you get paid?

Determining pay for a new company is also very important, especially if there are different expectations between the two of you. For instance, maybe you expected both owners to take a salary that is about 10% of the total earnings. Your partner expected to simply split the earnings 50-50. A dispute over this can be highly contentious, but establishing pay rates in advance can avoid it.

What do you own and what role do you have?

Finally, you just want to determine what percentage of the business each of you own and what you are expected to do there. This is highly different than being an employee, who has a strict definition for their job. It is also much different than being a sole owner, where you can do whatever you would like and you are in control of all of the decisions. Business partners will usually have very different and often complementary roles, and the business operates more smoothly when these are well defined.

If you are starting a company, be sure you know exactly what steps to take.

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