One of the most import decisions when starting a business is determining the right structure. The right choice can mean the difference between a business’s success and failure. Partnerships are the best option for many, but there are some important issues to consider and clauses that can be included to help to create a strong and binding partnership agreement. These spell out each partner’s responsibilities, legal liabilities and financial obligations. While some states require the partnership agreement to be filed along with the business formation documents, Georgia is not one of them. Nonetheless, it is an important agreement that every partnership needs even when everyone is well intentioned and honest.
5 clauses that should be included
Each partnership’s circumstances are different, but these agreements should generally include such clauses as:
- Capital contributions: The agreement should clearly outline what each partner contributes (money, sweat equity/skills, property, etc.) and how that ties to the percentage of ownership.
- Duties: It is important to spell out each partner’s duties, including the decision-making authority, management authority and any other important responsibilities.
- Sharing profits: This is generally tied to the percentage of ownership and will spell out how much the partners will draw or pay themselves.
- Liabilities: Not all partners may be equally liable for business obligations, and some may wish to protect personal assets if the business becomes insolvent and indebted.
- Dispute resolution: Not all partnerships go smoothly and some will have growing pains, so it is best to have a plan that outlines how disagreements are to be resolved (ideally using mediation or arbitration instead of going to court).
Each agreement should address the partnership‘s needs
A standard fill-in-the-blanks partnership agreement can be found on the internet, but these are a classic example of “you get what you pay for.” Considering the potential for reward and risk, it is wise to make sure that partnership addresses the needs of all parties by consulting an attorney with experience drafting partnership agreements and other business documents.