How to Write a Simple Business Partnership Agreement
What is a partnership business? In simple term, it is a business involving two or more people. This method is widely accepted and many prefer partnership as they will have more than enough resources needed to start the business.
Are you involved in a partnership business and you are in the search for some information on business partnership agreement and what should be included in a business partnership agreement form or a partnership deed? Do you need a sample business agreement between two parties?
In this article, we would be discussing the business partnership agreement, its advantages, the content, the function etc.
What Is A Business Partnership Agreement?
Business partnership agreement a contract between business partners used to establish and divide responsibilities, divide both profit and loss, and also give rules about their partnership. For a business you’re about to start, you will need this agreement as it will help provide the information needed for the smooth running between all parties.
Who Needs Business Partnership Agreement
Anyone (group, families, friends, colleagues etc.) who are planning to run a profit based business is expected to get a business partnership agreement.
Information Needed To Create A Business Partnership Agreement.
Some basic information needs to be on hand before going ahead to produce a business partnership agreement form, below are some of the essential provision needed to establish the agreement.
- Partnership Name: This is the legal name that will be given to your partnership, it is more like a business name.
- Business Address: Your business address is needed for you to have a business partnership agreement.
- Name of Partners: You need to state clearly the names of each person that will be included in the partnership agreement.
- Number of Partners: This information will also be needed as it will help in planning ahead for whom and who will be included in the agreement.
- The Effective Date of Agreement: This date is the date on which the partnership agreement will begin. And it is best fixed few days after the business partnership agreement is signed.
- Purpose of Agreement: The purpose of reaching the agreement must be clearly stated, as this will help in knowing what type of agreement to make.
- Roles of Each Partner: In a business partnership agreement form, the roles of each member must be clearly stated beforehand, and all must agree to this roles and responsibilities before proceeding to sign the agreement form.
- Distribution of Funds: This is also needed before going ahead to create a business partnership agreement, the amount to be invested by an individual, the ratio to be given to each individual from the interest.
- Withdrawal of Partner Arrangement: It will be stated if a partner can leave the business whenever he likes or if none of the partners will be allowed to leave.
- Plans for Dissolution: There might be situations where a partnership might be dissolved, the business partnership agreement will clearly state the conditions will warrant dissolution, it may occur as a result of the death of one partner, bankruptcy of a partner, completion of business dealings etc.
Types of Partnership
- General Partnership: This involves two or more people coming together for a business purpose, in general partnership, all members shares equal rights and responsibilities, and any individual can bind the whole group to a legal agreement.
- Limited Partnership: In this type of partnership, each member or partner can restrict his or her own liability to correspond to his investment. Here one person becomes more open to debts, obligations, and benefits.
- Limited Liability Partnership (LLP): In this type of partnership, each individual is responsible for his or her own actions, and each person suffers the penalty for his/ her actions alone.
Benefits of Business Partnership agreement
- Helps Clarify Nature of the Partnership: With a business partnership agreement in place, you will be able to know exactly the type of partnership business you’re running.
- Help in Sharing of Profits Easily: With a detailed agreement on hand, it will be easy to share the profit gained over a period of time between all partners, without it, sharing would have become a serious problem.
- Help Avoid Unnecessary Legal Proceedings: In case of legal disputes arising among partners, consulting the business partnership agreement will provide the solution.
- Help Limit Liability: With a business partnership agreement, each partners level of liability will be clearly stated and this is mostly dependent on how much each individual invests in the business.
Business partnership management and voting
Partnership management must be defined clearly; it might be by designation or by majority voting by all partners. There are three ways the voting can take place
- The Virtue of Investment: The value of investment might define each partner voting power.
- The Proportion of Share in Profit: Voting power might also be assigned according to how each partner profit is distributed.
- Equal Vote: The Voting power of all partner here is the same irrespective of their investment.
In conclusion, the best way to give your partnership business the need shape and stability is by getting the business partnership agreement form and completing it before starting the business.