Why Should A Business Have A Partnership Agreement?

If you are in business with others, but have not formed a company

, then legally you will have created a partnership. When this occurs the law will imply into your partnership certain rules about how your business is to be governed. While these rules are a fairly good attempt at framing how your partnership should be run, they are not necessarily the best fit for all partnerships. You could therefore find yourself with rules that you do not want, and outcomes that were never intended

For instance, where there is no partnership agreement then legally all profits of the partnership should be shared equally by the partners. This may not be a good fit for your business if the partners have invested unequal amounts in the business or have different

or have and on the death of one partner your partnership must come to an end.

The only way that you and your partners can avoid this from happening, and ensure the rules governing your partnership are those agreed by all the partners, is to create a partnership agreement.

Your partnership agreement will cover a number of different elements, including:

*The voting rights of partners in making decisions

*The types of work the partnership will carry out

*How disputes are resolved

*Any limit on the length of partnership

*How partnership profits are dealt with

*How a new partner can join the partnership

*How and when a partner can leave or be expelled

*The death of a partner

Your partnership agreement will reflect the wishes of the partners and the size of your firm. It can be as straightforward or as complex as it needs to be, and will grow and develop as your business does. Without a partnership agreement you are leaving yourself open to lengthy and costly problems, should any dispute arise between one or more of the partners. By planning ahead and agreeing everything in advance, you will ensure that the way your partnership is governed is properly understood and followed by all the partners. This limits the chance of disagreements arising.

Even if your business is already established and there have not been any problems to date, you can still put a partnership agreement in place. It is not just for new or start up businesses. If you have established through the course of your dealing certain ways in which the partnership runs then getting them formally agreed should not be too big a deal and will help to prevent any future problems from occuring. A partnership agreement is therefore something that all partnerships should have in place to assist in ensuring the smooth running of your business.

by: Ashley Easterbrook

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