The 4 Things That Must Be Included in Every Partnership Agreement

January 7, 2021
  • A written partnership agreement is a must-have so that each partner knows their fiduciary duty towards the business.

  • If disputes arise between partners, the agreement serves as a frame of reference to easily resolve them without going to court.

  • Contact us at 201-488-1825 to schedule a free consultation with our business law team!

Our business lawyers draft and implement written partnership agreements for clients looking to start a business together.

Before signing the agreement and moving on with forming your business, make sure your partnership agreement includes the following:

  • Ownership percentage of each partner. There is no standard formula for determining the percentage of the business that each partner owns.  However, once the ownership percentage is confirmed and each partner fully consents to their share and their corresponding duties, this needs to be Item #1 in your written agreement.

  • Profit and loss allocation. Unless the partners agree on an alternative method, business profits are usually split in proportion to each partner’s share.  You may also only pay each partner based on work performed, or each partner may receive a different base salary and split the remaining profits.  Regardless of what you decide, it is important that these terms be included in the agreement, as well as when and how each partner will be paid.

  • A buy and sell agreement. It’s difficult to predict the future, so when establishing your partnership agreement, you need to keep in mind what will happen if one partner passes away or chooses to leave the business.  A buy and sell agreement needs to be included as a part of your larger partnership agreement.  This will determine how the exiting partner’s share will be valuated, and whether it will be sold to the remaining partners or to the business itself.

  • Each partner’s authority. In a 50/50 partnership with only two co-founders, each partner must consult the other before binding the business to a debt or contractual agreement.  In any other type of partnership, the initial agreement must spell out which partner has the binding power and the steps to be taken in that circumstance.

The business law team here at The GC Law Firm will make sure your partnership agreement clearly spells out your rights and obligations to your business.  We look forward to working with you!

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250 Moonachie Rd, Ste. 200, Moonachie, NJ.

(201) 488-1825

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(212) 878-6699

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