Intellequity, is a business law firm located in Portland, Oregon that can draft or advise on your partnership agreement. I am an experienced business formation and contract law attorney that can help you navigate the pitfalls of these complicated documents and help minimize the risk that a misunderstanding will arise; a misunderstanding that could lead to needless and expensive litigation in the courts. Read below for more information on partnership agreements and why you should have one for your partnership.
What is a partnership agreement?
A partnership agreement is a written document that defines the legal relationship between two or more business partners. It outlines the responsibilities, rights, and obligations of each partner, clearly defining aspects such as profit sharing, decision-making procedures, dispute resolution mechanisms, and processes for the admission or exit of partners. It is an essential document that any partnership should seriously consider.
Key elements of a partnership agreement often include:
Partnership Name and Purpose: Identifies the partnership's name and the nature or purpose of the business.
Details on what each partner will contribute to the partnership, potentially comprising money, property, or effort and skills.
Profit and Loss Distribution:
How profits and losses will be allocated among partners, typically corresponding to their proportionate share in the company.
Management and Decision Making: Outlines how the partnership will be managed, the decision-making process and how votes are weighted.
Description of the specific roles, expectations, and responsibilities of each partner.
The agreed-upon process for settling any disagreements or disputes.
Admission and Withdrawal of Partners:
Procedures for bringing in new partners or handling the withdrawal, retirement, or death of a partner.
Dissolution of the Partnership:
Specifies the conditions under which the partnership may be terminated and how assets will be distributed upon dissolution.
Why do I need a partnership agreement?
Having a partnership agreement offers a solid legal foundation for the business and can significantly reduce potential tensions or legal disputes. It affords partners the opportunity to preemptively address and resolve many of the complexities and challenges that can arise in business relationships. There are several reasons why a partnership should have a partnership agreement, including:
Clarity on Roles and Responsibilities:
A partnership agreement clearly outlines who is responsible for what in the business. It delineates the roles and responsibilities of each partner, thereby reducing potential conflicts and misunderstandings.
Profit and Loss Distribution:
The agreement can specify how the business' profits and losses are to be distributed among the partners. This is crucial as it covers the financial agreement between partners and helps avoid disputes over money.
Decision Making and Dispute Resolution:
A partnership agreement can outline how decisions will be made, which can help maintain fairness and neutralize power imbalances. It can also lay out a process to handle disputes, which can save time, legal trouble, and potentially the partnership itself.
Change in Partnership Structure:
The agreement can define the procedures for adding or removing partners, as well as handling possible eventualities such as the death of a partner, retirement, bankruptcy, etc.
If the partners decide to dissolve the partnership, the agreement can provide an exit strategy and dissolution plan that ensures fairness and smooth transition.
Why should I hire an attorney to create a partnership agreement?
Hiring an attorney to draft a partnership agreement makes good business sense and is beneficial for several reasons:
Expertise and Experience:
Attorneys have the legal knowledge and experience to write comprehensive and clear partnership agreements. They understand the nuances of the law and can ensure that your agreement is drafted in accordance with local regulations and statutes.
An attorney can customize the agreement to suit your specific business needs, goals, and structure. Every partnership is unique, and a one-size-fits-all template may not cover all the specific considerations pertinent to your business.
An attorney can identify potential pitfalls and risks, and help draft provisions to safeguard the partners and the business from legal disputes, financial loss, and other unforeseen circumstances.
With their understanding of dispute resolution and conflict management, attorneys can help structure your agreement in a way that minimizes the possibility of future disputes among partners.
Time and Effort:
Drafting a partnership agreement can be time-consuming and complex. An attorney can save you time and effort by managing this process for you.
Please note that while an attorney should always be involved in the drafting of a legal document such as a partnership agreement, it's also important for all partners to understand the terms of the agreement fully before signing. This ensures everyone's interests are protected and everyone is on the same page about how the partnership will operate.