It’s an unfortunate fact that business ventures can put a strain on relationships. When a business partnership first starts out, both you and your partner may feel as though the future is bright and you are marching toward the same goal. But when difficulties occur or your business expands, serious disagreements can arise and lead to conflict.
At Patrick, Harper & Dixon, we know the value of a solid and detailed business partnership agreement. We have witnessed how these agreements can avoid unnecessary conflict, resolve unforeseen circumstances, and keep a business growing and moving forward.
If you are concerned about protecting your new business venture, let Patrick, Harper & Dixon help you create a strong business partnership agreement.
What Your Partnership Agreement Should Contain
Drafting a usable partnership agreement involves more than just coming up with an idea and a name for your business venture. Since your business agreement will govern how your partnership will operate, it should contain the following provisions:
- The company’s name and what your partnership is in business to do
- Names of all of the partners, the roles each partner will play in the management of the business, and the contributions made by each partner
- How much of an ownership stake each partner has in the business
- The profit and loss distribution of the partnership
- What happens in the event a partner dies, becomes incapacitated, or divorces
- The circumstances under which the partnership will dissolve and how its affairs will be wound up
Consulting with an experienced lawyer as you consider these and other provisions is essential to crafting a business partnership agreement that will work for you and your business’ needs. is enforceable.
In addition, each partner should take advantage of the opportunity to speak to their own attorney about how the partnership agreement impacts them before they sign. Doing so provides more protection to each partner and helps solidify the enforceability of the partnership agreement.
Common Sources of Contention Without a Partnership Agreement
If there is no partnership agreement in place early on in your business, you and your partners may quickly come to disagreements regarding how you want to organize and run your businessthat become heated. Some of these disputes can lead to litigation being filed by one partner against another.
The topics over which business partners in North Carolina tend to disagree the most include:
Future Direction of the Business
When your partnership starts out, you and your partners will want to decide why your business exists. In other words, your partnership should have a clear understanding of what good it is providing or what service it is offering.
When all partners agree on this purpose statement, it becomes easier for all partners to agree to accept or forego a particular business opportunity.
Roles and Authority of the Various Partners
Partners may assume that they each have an equal voice in the management of the partnership, but this is not always the case. If one partner contributed a significant amount of assets compared to another partner, that first partner may have a greater say in business decisions than the second partner.
If there are specific roles and responsibilities that you and your partner would like to establish, such as agreement says that one partner gets to make certain day-to-day decisions or financial decisions, putting this in writing at the outset can help in the event of an argument.
Distribution of Profits and Losses
Most businesses exist for the purpose of making money. In a partnership, the partners are the owners. They can reasonably expect to share in any profits the partnership makes. You will want to specify how these profits will be shared, though, because otherwise, the law may distribute them in a way you do not intend.
Absent a provision in your business partnership agreement, all partners will share the profits and losses of the business equally. This equal distribution may frustrate partners who contribute more than others, and partners who contribute very limited amounts of capital may not like being on the hook for an equal share of losses.
In many cases, a well-thought-out partnership agreement could have helped resolve these disputes quickly and with minimal interruption to the business’s operations.
Is it too late to get a business partnership agreement?
Even if your partnership is already in existence, it is never too late to craft a partnership agreement. Whether you are just starting out or your business has been operating for some time, you can still benefit from the clarity and other advantages a partnership agreement affords.
The only time it becomes too late to craft a partnership agreement is when you and your partners are already embroiled in an inter-partner legal suit.
The Time Is Now to Contact Your Hickory Full-Service Law Firm — Patrick, Harper & Dixon
If you are interested in learning how a partnership agreement can help your business, or if you are ready to take advantage of our Hickory full-service legal team’s experience in this area, contact Patrick, Harper & Dixon. We are ready to help you draft and enforce your business partnership agreement.
