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What is a partnership agreement?

A partnership agreement is a legally binding document that sets rules for your business relationship. The agreement might have information on what happens if one partner leaves, or it may have other important rules or guidelines that each person must abide by.

What happens if you don't have a partnership agreement?

If you decide not to create your own partnership agreement, then your partnership will default to the laws of the state. The rules are known as the Uniform Partnership Act. While it can be tempting to just go by the rules of the state, creating your own partnership agreement allows you to make more specific and specialized rules and guidelines for your situation.

What kind of information should be in a partnership agreement?

Your agreement may need to include the name of your partnership, the contribution required of or supplied by each partner and how losses, profits and draws are allocated to each partner in the business. Certain partners may not have the same authority as others, so indicate this in the contract. If you want someone to have decision-making authority, this should be indicated, so you can show if someone who doesn't have the authority oversteps his or her boundaries. You don't need to include every step of your management plan, but having some general guidelines can be of assistance.

Finally, if you plan to bring in any new partners in the future, make sure you include this information and how to go about bringing a new person into the company. It's better to agree on this now rather than to wait until it could be a problem in the future. If you aren't sure how to add this in or what parameters you should set, a lawyer can give you some ideas on what you should consider.

Source: FindLaw, "Write a Partnership Agreement," accessed Jan. 03, 2017

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