Points Should Included in the Partnership Agreement

A Business requires a set amount for enhancing business growth. It could be a task scenario to arrange this amount individually, here partnership plays an important role. It is a business structure where two or more individuals run a business together. This partnership is built on trust and has more possibilities to create disputes among members in future.

However, the partnership businesses must form a partnership agreement. It serves as legal documentation that defines the roles and objectives of a business. Most of the time while drafting the agreement, the members do not mention everything which can lead to big disputes and create more chances to dissolve this contract before the timeline. Therefore, the partnership agreement must contain all the points. This blog will help you to determine every key point that should be included in the partnership agreement.

Before elaborating on the key elements, you should have some basic understanding of the partnership, agreement and purpose. These are as follows:

1. Partnership: The Partnership is a business strategy, where two or more individuals or entities collaborate and run a business simultaneously. In a business partnership, each member has a different role and duties under the entity that should be performed by the partners, otherwise, it can lead to disputes.
2. Partnership Agreement: The Partnership Agreement is a business contract that serves as a legal document. This agreement contains each partner’s responsibilities, work, role and duties in the company. It outlines the rights and obligations of each partner, the structure of the partnership, and the dissolution of the partnership. It is important to read and understand the agreement before signing it.
3. Purpose: The main purpose of a partnership Agreement is to provide a clear and legal framework for collaboration. It states the work, responsibilities, profits & loss sharing, decision-making procedure and many more among each member. It aids in preventing disputes and ensures the longevity & success of the partnership business.

The key points as given below that should be included in a partnership Agreement while drafting it:

1. Firm Name: The Partnership Agreement must clearly mention the firm name under which the business operates. It aids in providing an official identity to the business in the marketplace. It is crucial to select a unique name for the business. It helps to give a distinct identity as well as easy to get the Trademark.
2. Business Nature: The main part of the business that should be in the Partnership Deed is “Business Nature”. This section outlines the products and services that the partnership entity provides. This clarity aids partners in understanding the partnership's scope and goal.
3. Business’s Duration: Some partnerships or businesses have a specific duration. However, the partners should define the duration or terms of the partnership. Whether the business is a project or a long-term business, the intention must be clear, this mutual understanding helps in resolving future disputes.
4. Profits & Loss Distribution: Every business has to face every situation where they might get profit or loss too. Therefore, the Partnership Agreement/ Partnership Deed must clear the distribution of profit or loss for each member. This distribution amount could be based on capital investment and every member should agree upon this distribution percentage.
5. Method of Solving Disputes:At the developing or developed stage, a business has to deal with several disputes that could be risky for a business. However, the business members should make a strategy and mention in the Partnership Deed how the partners resolve the disputes if it will arise.
6. Business Dissolution Process: If any partner wants to exit or dissolve this partnership, it can raise business disputes. However, the members should prepare and mention the process of dissolution & exit. Outlining the process in advance in the Partnership Agreement/ Partnership Deed gives a roadmap to handle the disputes and complexities of business dissolution.
7. Investment & Interest: Each business requires investment to enhance its business finance or identity in the market globe. If the business type is a partnership, each member has to invest first as per its shares. In the agreement, clearly state the investment and interest of each member and others' financial commitment too.
8. Salaries & Withdraw: The Partnership Agreement/ Partnership Deed should also mention the salaries & withdrawals for each partner. It should also detail the procedures for partner withdrawals from the company for personal use, maintaining transparency and determining guidelines for accessing cash related to the partnership for personal reasons.
9. Roles of Each partner: An individual can’t perform every responsibility and duty that a business requires. Each member or partner has a different role in the company. In the partnership deed defines each partner's duties and responsibilities inside the company. This includes executive duties, decision-making authority, and any particular activities assigned to each partner.

The benefits of Partnership Agreement/ Partnership Deed is given below:

1. Partnership Agreement reduces misunderstandings by clarifying each partner's roles, responsibilities, and expectations.
2. Clear terms and conditions reduce the risk of disputes and potential legal conflicts by providing legal protection.
3. Provides information on capital contributions, profit distribution, and investment terms to ensure financial transparency.
4. Reducing the risk of conflicts becoming legal battles by establishing dispute resolution mechanisms.
5. Ensures continuity and stability by defining the duration of the business and outlining the procedures for handling changes.
6. Outlining interest in investments and defining contribution terms, protects each partner's investment.

Litem specialises in drafting thorough Partnership Agreements that are specific to your company's needs. By establishing duties, responsibilities, profit distribution, and dissolution plans, our skilled team guarantees legal clarity and protects your interests. Trust us to establish a firm basis for your collaboration, boosting success and reducing possible conflicts.

Partnership Agreement is the foundation for joint success. Businesses can strengthen their partnerships by integrating critical aspects such as clear role delineations, appropriate profit-sharing methods, decision-making frameworks, and contingencies for any disagreements or changes. Crafting an agreement with these key aspects not only builds a solid legal foundation but also develops mutual understanding and resilience, establishing the way for long-lasting and profitable joint partnerships.