How the Business Partnership Agreement Works?

Posted by Unimarks on November 16th, 2019

Making a business is a huge task that never always involves one person sitting on the throne of ownership. Many top businesses reached that level of heights because they had the right kind of partnerships for their business. But many entrepreneurs or mainly start-up entrepreneurs hesitate to file a partnership as they fear that they may lose their priced creation to partners and by this, they give up a lot of amenities that they could get for their business. And their fears are pretty reasonable, many have lost their companies to partners when the dispute goes on, but that is actually because many have little idea on how to file for the partnership properly. That is why we have come to you with this article, reading below will let you understand the concept of partnerships and it’s benefits.


Now let me tell you about the partnership agreement, A partnership agreement is a legal document that simply formalizes business operations and creates a contract between the partners. General partnership agreements protect businesses from any internal disputes by establishing partnership responsibilities for each partner and more. 

The three types of partnerships which include:

1. General partnership: A general partnership is the most basic form of partnership and does not require any sort of state filings or other formalities like annual meetings. Instead, a general partnership is formed among the partners, each time they come together to engage in any sort of business activity. A general partnership doesn’t have to file its agreement but keeps a signed copy on file in case disputes arise.

2. Limited partnership: Limited partnerships (LPs) are typically reserved for all finite projects like estate planning. This sort of structure requires the filing of documents with the state and offer liability protections for its limited partners only. General partners, who oversee day-to-day business activities, have unlimited liability for the acts and debts of the Limited partnership.

3. Limited liability partnership: Limited liability partnerships (LLPs) are a little more complex and could only be formed by certain types of professional businesses that possess licensing under the state laws, like doctors, architects, and attorneys. LLPs don’t protect partners from their own malpractice, but a partner’s personal assets can’t be used to satisfy the debts of the LLP corporation.

Because partnerships are pretty complex legal entities, it’s recommended to hire an attorney to help choose a business structure and file it. 

Partnership agreements are a legally binding contract between the business partners. Even a simple partnership agreement would formalize your partnership’s management structure and protect it from any sort of internal disputes. If you require a partnership or an LLP agreement drafted, hire an experienced attorney or simply click here.

Benefits of a Business Partnership Agreement

Having an enforceable partnership agreement for your business has several benefits. When drafted correctly and signed by all of the partners, a partnership agreement could protect your business from internal disputes that arise and prepare the partners for difficult management decisions which are to be taken in the future. So Familiarize yourself with the benefits of an enforceable partnership agreement before you start drafting one for your own business.

The benefits of having a partnership agreement are:

1. Avoid State Default Rules: Under default rules, partnerships terminate under certain circumstances and internal disputes must be resolved using default procedures. Avoid default outcomes by drafting a business partnership agreement describing how profits will be distributed, how the partnership may be terminated and other important procedures.

2. Prevent & Resolve Disputes: Among other important terms, business partnership agreements describe how partners must vote and who has authority to make decisions for the business. Partnership agreements also include resolution procedures in the event of a conflict between partners. Have dispute avoidance and resolution terms in place to protect your business from failing due to the disagreements between partners.

3. Clarify Business Structure: Drafting a business partnership agreement would help you and your partners outline how the business would be structured. By detailing their responsibilities and explaining the authorities of each partner, a partnership agreement provides more clarity and allows the partnership to be operated more efficiently. You can also Include partnership responsibilities and expectations within the partnership agreement to lend a little more structure to your business.

4. Facilitate Business Transition: Transitions can occur in your business if a partner passes away, becomes otherwise incapacitated or chooses to leave the partnership. If you don’t provide for alternatives in your partnership agreement, default state laws will automatically dissolve your partnership upon the death or bankruptcy of a partner.

Drawbacks of a Business Partnership Agreement

A business partnership agreement can protect your business from many internal disputes and other management issues. However, hiring an attorney to draft your agreement can be expensive but efficient. A partnership agreement may also restrict the partner’s authority and delay decisions. And there are few drawbacks to drafting this agreement.

The drawbacks of a business partnership agreement include:

1. Costly to Draft: Having an attorney draft legal documents for your business could get a little expensive. You can create them yourself by taking a few free templates, but it is not advisable as this agreement has the fate of your companies future in it. see the cost in the matter is seen as a drawback by many but it is a secure investment in many ways.

2. Restrictive Language: Formalizing your management responsibilities, the voting structure being implemented, profit distribution and other elements of your partnership could restrict how your partners behave. Although this is the general advantage of having a partnership agreement in place, it can reduce flexibility in your business operations by limiting partner authority and slows down the process of decision making.

3. The Bottom Line: General partnerships are formed when two or more partners agree to enter into business together. A formal filing isn’t required to create a simple partnership, but you should execute a partnership agreement that formalizes the business structure. Include the terms and conditions like partner contributions, dispute resolution methods, and profit-sharing in the agreement your drafting to protect you and your business.

Now we hope you have got an idea of what a partnership agreement is. Do note as we have mentioned repeatedly in the article, a partnership agreement is something that decides the fate of your company and taking professional help is advisable. Even if you want to cut your cost by making one by taking an online template but please do experienced attorneys take a look at it.

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Joined: November 6th, 2019
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