Why Are Business Partnership Agreements Important?
Why Are Business Partnership Agreements Important?
When you want to start a business with someone else, even if it’s a family member or a friend, you should create a partnership. In Florida, even if there isn’t a partnership (or general partnership) written down, you still have to comply with the registration, filing, and tax requirements just like any other business.
Although this is not a necessary step, business partnership agreements should always be written down. This is what will help you if things don’t turn out the way you expected as it will avoid any misunderstandings between your partner and you. Generally speaking, this written agreement should include the contribution each partner has to the partnership, how profits, loss, and draws will be taken care of, each partner’s duties and authority, how to resolve disputes, voting rules for decision-making, and how to admit new partners.
The most important aspects of business partnership agreements include:
1. Ownership
Each partner may own a higher or lower percentage of the business. And this will have an effect on the profits share as it may also influence the decision-making votes. Whenever one of the partners has more responsibilities over the management while the other entered with more initial capital, for example, it should also be stated in this agreement.
2. Control
There may be situations when each partner has 50% of the business but can’t agree on a certain decision. And this can also happen even if one of the partners is a majority owner. In these cases, the best thing you can do is to have written down on the business partnership agreement who has the final decision call in case of a tie. However, you can (and should) also have another clause there to avoid confusion. For example, you can limit both partners’ rights to not be able to relocate the business, spend more than a specific amount, or even sell to a new partner, if the other partner doesn’t provide written consent.
3. Liability
There are many types of partnerships. With a general partnership, each partner has the same liabilities and responsibilities as the other. However, there are other partnership kinds where you have one partner who is basically the investor and the “working” partner who takes care of the business. In this case, the investor partner may be interested in not taking a higher percentage of the liability since it’s the other partner who is making all the business-related decisions. So, it’s important to have this mentioned in business partnership agreements as well.
4. Dissolutions
You need to be able to know how to proceed with your business when things don’t work out as expected. There are many variables that you can take into account.
For example, while some partnerships establish that when one of the partners want to sell his part of the business he needs to tell it to the other partner and allow him to make an offer first, other partnerships just express that in order to be able to sell his share, he needs the approval of the other partners.
Most partnerships will end if one of the partners passes away. If the remaining partners want to continue the business, they will need a new business partnership agreement. In other cases, the heirs can buy the deceased’s shares and become a part of the business.
Do you need a partnership agreement? We serve small businesses across the State of Florida. We are located in St. Petersburg, Florida and serve the counties of Hillsborough, Pinellas, and Pasco for an in-office appointment.
Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling 727-279-5037.
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