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Business partnership agreement: What it is and how it works.
What is a partnership agreement, and why do you need one?
What is a business partnership agreement?
A business partnership agreement establishes rules for two or more parties going into business together. It’s a legally binding document that outlines every detail of your business operations, ownership stakes, financials, responsibilities, and decision-making strategies. If you’re going into business with a friend, relative, or another business, you’ll need an airtight business partnership agreement. Learn more below about why they matter and how your work with contracts can be made simple with one easy app — Adobe Acrobat.
How does a business partnership agreement work?
No matter how confident you are in your business partnership, and working relationship, all co-owning parties will want to sign a business partnership agreement before going any further.
A business partnership agreement works by clearly defining the structure, rules, and expectations of the partnership between two or more parties. It serves as a legally binding contract that helps prevent misunderstandings and conflicts by outlining each partner’s rights and responsibilities.
Typically, the agreement includes details such as the percentage of ownership, how profits and losses will be shared, the decision-making process, roles and duties of each partner, and procedures for adding or removing partners. It may also cover what happens if the business dissolves or if a partner decides to exit.
Once all partners agree to the terms, they sign the document, making it enforceable under the law. This ensures that, in the event of a dispute, the agreement can guide resolution and protect the interests of all involved parties.
Benefits of business partnership agreements.
Business partnership agreements lay the foundation for a successful partner relationship. When business partners come together with clear processes and responsibilities, they can focus their collective efforts on fulfilling those responsibilities and building the business.
Business partnership agreements make it possible for partners to benefit from one another’s knowledge, experience, and skills. Partnerships are serious, and a formal agreement sets the tone for the serious task of growing a business together.
A partnership agreement, sometimes referred to as an operating agreement, provides these essential benefits to your business:
- Clarifies roles and responsibilities. Business partnerships legally outline who is responsible for what in your business. Deciding this from the outset enables you and your partner(s) to clearly establish each of your duties to avoid confusion and miscommunication down the road.
- Establishes your business practices. Thinking through — and agreeing on — how you’ll run your business is crucial to a functional, successful operation. And outlining it in a legally binding business partnership agreement formalizes and enforces these practices.
- Reduces monetary disputes. Partners equally share in profits and liabilities, which can lead to disputes — especially if one partner is investing more time or money into the business. Business partnership agreements outline details on financial contributions and entitlements and can help make profit sharing more equitable by basing it on partners’ contributions to expenses or start-up costs.
- Sets decision-making processes. Understand how you’ll resolve disagreements before they even come up by establishing voting rights in your business partnership agreement.
Make sure you get legal advice on how to write a contract before developing your business partnership agreement to ensure it meets your own business needs.
What to include in a business partnership agreement?
Your business partnership agreement may include the following:
- Contributions. How much is each partner putting into the business financially?
- Salaries. How much will each partner be earning from the business? Will profit be split equally?
- Titles. What will each partner be called in the company?
- Responsibilities. What parts of the business will each partner oversee? What accountability or metrics will be put in place?
- Disputes. How will disputes between the partners be resolved?
- Liability. Who is liable for problems that may arise?
- Growth and dissolution. What is the process for making updates to the partnership agreement? What happens if one partner wants to leave the company?
Create, sign, and share business partnership documents to get started.
With Adobe Acrobat for business, create airtight business partnership agreements, share the electronic documents with your partners, easily e-sign them, and get started building that business with confidence and clarity.
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