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What are some of the reasons to use a partnership agreement?

On Behalf of | Oct 23, 2022 | Business Law |

A partnership agreement is a legally-binding document signed by two business partners when they start their company. It’s wise to have this framework in place, but some business owners decide not to do so. They simply agree with a handshake deal, or they trust each other because they were friends, coworkers or even family members prior to starting the business.

But operating without a partnership agreement is relatively risky. Take a look at some of the benefits of creating one.

The financial terms are well defined

From a financial perspective, you need a partnership agreement to determine things like how much you’re supposed to be paid, how revenue should be divided, what to do with company profits and what ownership percentage you and your partner each have.

It can tell you how to resolve disputes

It’s nearly inevitable that you’re going to be involved in a dispute at some point with your business partner. A partnership agreement can include steps to resolve disputes or recommend action that should be taken. It can also give guidelines for the company to simply prevent these disputes from happening.

You know your role

Employees often know their roles at a business because they have a job title and they’ve been hired for a specific purpose. Business owners may feel a bit more like their position isn’t as well defined, especially with a small company where they tend to wear many hats. But a partnership agreement can help to define these roles so that both you and your partner understand what obligations you have.

If you are starting a business, I’ll take the time to look into all of the necessary legal steps.