Partnership contract: What is a partnership agreement?
Learn more about partnership agreements — and why you need one to start your business.
A partnership contract is a fundamental document in the world of business partnerships. This agreement spells out the terms, roles, and responsibilities that govern a partnership between two or more individuals or entities. Whether you’re new to the concept or seeking a deeper understanding, let’s go into what a partnership contract entails and why it’s essential.
What is a partnership agreement?
What is a partnership agreement, exactly? A partnership agreement is a contract between businesses or individuals who are running a business together. It sets rules for partners to follow in order to prevent any future fallout or disputes. The document establishes responsibilities, profit distribution, and any other guidelines on financial reporting or capital contributions.
Before you go into business with a partner or merge your business with another, make sure you have an airtight partnership agreement in place. It will help secure your end of the deal and prevent legal issues down the road.
Why you need a partnership agreement contract.
Now that we’ve covered what a partnership agreement contract is, let’s go over why you need one. A partnership agreement contract is not just a formality— it’s also a tool for ensuring the success of your business partnership. This legal document serves several purposes, including:
- Clarity. It clearly defines the roles, responsibilities, and expectations of each partner, reducing misunderstandings.
- Protection. It provides legal protection for all parties, outlining dispute resolution processes and safeguarding each partner’s interests.
- Profit sharing. The agreement sets rules for how profits and losses will be distributed, ensuring fairness.
- Decision-making. It outlines the decision-making process, preventing unilateral decisions that could harm the partnership.
- Exit strategy. The agreement includes provisions for partner departures, ensuring a smooth transition.
What are the different types of partnership agreements?
It’s important to choose the right type of partnership agreement that aligns with your business goals, along with the level of liability protection you want. Let’s delve into the various types of partnership agreements, understanding their unique structures and implications. Here are the key types of partnership agreements:
- General partnership (GP). In a GP, partners share equal responsibility and unlimited liability for business debts.
- Limited partnership (LP). LPs have general and limited partners, with the former bearing unlimited liability and the latter enjoying limited liability protection.
- Limited Liability Partnership (LLP). In an LLP, all partners have limited liability, shielding their personal assets from business liabilities.
- Limited Liability Limited Partnership (LLLP). An LLLP combines features of LLPs and LPs, offering flexibility in liability allocation.
- Professional Limited Liability Partnership (PLLP). PLLPs cater to licensed professionals, providing liability protection for individual partners in malpractice claims.
What should you include in your partnership agreement?
When you’re drafting your partnership agreement, ask yourself these questions:
- Capital contribution. How much money is each partner putting into the business? What happens if the business needs more money? What is each partner’s role in this business?
- Decision-making. What is your strategy for making decisions as business partners?
- Salaries and distributions. How will you each get paid? What are your long-term financial goals as a business — do you want to go national or maintain a small, local reach? How should money be allocated amongst partners?
- Dissolutions. What will happen if a partner no longer wants to be involved in the business?
Answering these questions can help you write a contract and guide your contract development process. However, make sure you consult a legal expert before finalizing your partnership agreement to ensure it meets your own business needs.
Easily create and securely sign partnership agreements.
With Adobe Acrobat, you can create confidential, electronic documents for your business, including partnership agreements, and then easily e-sign for your business, including partnership agreements, and then easily sign, share, and store them for a secure electronic signature audit trail.