It is very important for every partnership to have a written agreement that spells out the duties, rights, and responsibilities of each partner. No matter how small the partnership is and how friendly the partners are at the time of the partnership formation, it is important that a written partnership agreement clearly details what the partners expect from each other and what will happen if the partnership becomes successful or fails.
A partnership agreement entered into between partners to a partnership would be a binding contract that would explain what will happen in various situations. There are some important clauses that should be in every partnership agreement. This list does not detail every clause that should be in a partnership agreement.
- Percentage of ownership/capital contributions. Every partnership should include how much each partner owns and how much each partner contributed to the partnership, including both time, effort, and money. Further, there must be an allocation for profits and losses and if additional capital contributions are necessary.
- Authority to bind the partnership. Every partnership agreement should detail which partners are able to bind the partnership. Although California recognizes that certain positions of a partnership may bind a partnership, it is also important to spell out who can bind the partnership into agreements.
- Death of a partner. A partnership agreement should be clear as to what will happen if a partner dies, becomes incapacitated, or needs to withdraw from the partnership. This is an area often in dispute that should be addressed in a partnership agreement.
- Decision making. A partnership should detail which partners will be making decisions for the partnership. If there are an even number of partners, who will have the final say? It is important to decide how decisions will be made to avoid stalemates or situations where none of the partners agree.
- Partnership dissolution. Although no one wants to believe a new business venture will fail, it is very common for new partnerships to falter. It is important for a partnership agreement to include what will happen if the partnership must close shop.
Although this list provides a small number of important clauses, a written partnership agreement is important for any new partnership and aids in fewer disputes later in the partnership. Attorney Anthony Marinaccio can guide you through drafting a partnership agreement, including the necessary steps to get your partnership going under California law. Marinaccio Law offers free initial consultations and flat fees for drafting or reviewing agreements. Please call Anthony Marinaccio at (818) 839-5220 to set up a consultation.