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Construct an appropriate partnership agreement

Business owners establish partnerships to help grow and advance their businesses. However, if the owners fail to handle certain aspects properly, the partnership may lead to business litigations and create more harm than good.

To help avoid this, it is important to have the right documentation in place. There are a few things to keep in mind when constructing appropriate partnership agreements. 

Make clear designations

The whole purpose of a partnership is for parties to work together to accomplish a set goal. Therefore, it is beneficial to completely lay out what roles or duties each party must fulfill. A few of the main considerations include the following:

  • Decision making
  • Profit and loss allocations
  • Percentage of ownership
  • Binding the partnership
  • Procedure for passing of a partner

It is important for the agreements to include these and other requirements as stated in California's corporate responsibilities laws. Business owners should become familiar with these to ensure that they account for all required information.

Conflict resolution

Ironing out how you plan to address conflict before it arises helps to minimize the impact of those instances. In fact, it might prevent the conflict from happening in the first place. Along with conflict resolution, it may be beneficial to lay out the terms for dissolution of the partnership in the case that it becomes necessary. If parties do this ahead of time when they are in agreement, it can make for a smooth process all around.

Write it out

Even if parties decide to begin a partnership with a gentleman's agreement, it is important to get the full details in writing as soon as possible. A written agreement helps to make sure all parties are on the same page and clearly denote the expectations on all parts.

These are just a few of the main considerations for a business partnership agreement. If you are thinking of entering into a partnership for your business, take some time to understand the law and select the right agreement that benefits you and your business.

 

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