7 Essential Clauses to Include in a Business Partnership Agreement

When entering into a business partnership, it is crucial to make sure you have a well-defined partnership agreement. This legal document sets the foundation for the partnership’s operation and management. Having a comprehensive partnership agreement helps prevent disputes between partners and ensures a clear path for decision-making processes. By working with an experienced attorney who understands the business law issues that will affect your company, you can make sure your partnership agreement will protect your business while establishing a framework that will allow you to work together successfully with your partner or partners.

The Importance of a Partnership Agreement

Your partnership agreement serves as a safeguard for all parties involved in your business, outlining rights, responsibilities, and procedures that govern the company’s daily operations and its long-term strategies. Here are some of the most critical clauses that should be included in every partnership agreement to ensure the stability of the business partnership:

1. Capital Contributions

Your agreement should specify how much each partner will contribute to starting the business and address any future needs. By detailing the amount of money, assets, or other resources each partner brings into the business, you can fully understand the level of investment and the personal stakes that will affect each party while operating the company.

2. Distribution of Profits and Losses

It is important to define how the profits earned by the business will be shared among the partners and how losses will be allocated. Typically, distributions are proportional to each partner’s initial investment, although other arrangements may be appropriate for your specific business. By fully understanding these distributions, you can help avoid potential disputes in the future.

3. Decision-Making Powers and Duties

Your agreement should fully explain how decisions will be made, including day-to-day management and larger, strategic decisions. Terms should include details about voting rights and the necessary quorum for decisions, and a partner’s decision-making rights will often be based on their proportion of ownership or investment. This can ensure that you will be able to make decisions correctly and resolve disagreements about the direction of the business.

4. Management and Authority

You will need to understand who will manage different aspects of the business and what powers they will hold. By assigning roles for administrative tasks, financial decisions, and operational responsibilities, you can avoid uncertainty about each partner’s individual responsibilities, and you can ensure that important ongoing issues will be addressed correctly.

5. Non-Compete and Confidentiality Agreements

These terms will protect proprietary information related to your business while preventing partners from competing against the business during and after their involvement. Your agreement should specify what information is confidential and what limits will apply to each partner. The duration and geographical scope of non-compete clauses should be properly defined, and they must be reasonable in order to be enforceable should the need arise.

6. Withdrawal or Death of a Partner

The agreement should outline the steps that will be followed if a partner wishes to leave the partnership. It may include buyout provisions, methods for the valuation of the departing partner’s share, and the mechanisms for transferring this share to the other partner or partners or back to the company. These terms can also apply in the event of a partner’s death, and they can ensure that the business will be able to remain operational even after a partner leaves.

7. Dispute Resolution

In the event that disputes may arise between business partners, it is important to outline the procedures for resolving these matters and avoiding problems that could affect the success of the business. Avoiding litigation will help keep internal business matters out of the public eye while also ensuring that the company can continue operating. Options for resolving disputes may include mediation, arbitration, or other specific steps for addressing conflicts.

Get in Touch With Our Naperville, IL Business Partnership Agreement Attorney

When forming a partnership, it is wise to consult with a local business attorney who can provide guidance on what issues to address in order to protect yourself and your company. Our DuPage County business contracts lawyer is ready to draft a comprehensive partnership agreement for you that will create a solid foundation for operating your business. Set up a consultation by contacting the Gierach Law Firm at 630-756-1160 and take steps to ensure that your partnership is positioned for success.