A properly drafted partnership agreement can pave the road for simple resolutions to potential disputes within your business. Alternatively, the lack of a partnership agreement (or a poorly drafted agreement) can create confusion and disputes that require lengthy and costly litigation to resolve. In these cases, state laws will control how the disputes are settled by relying on defaults set by statute. Not all of the defaults set by statute can be contracted out (e.g. fiduciary duties), but an experienced business attorney can help you and your partners determine which ones can be modified, and thus ensure that your wishes are properly documented.
Partnership agreements can cover a wide range of things, but most agreements typically include how the business is managed by the partners and whether a unanimous or majority vote is required for certain issues; the authority of each partner to legally bind the business by signing contracts; capital account management and whether money put in by the partners is a capital contribution or a loan that has to be paid back; how profits are shared; how withdrawals are made; whether a partner’s contribution is solely labor (not monetary), what value is assigned to that labor and what percentage of the partnership the labor yields; and whether new partners can be added and what type of vote that requires.
Although discussing how a business will end is not something most partners want to do amid the excitement of starting up, it is important to provide for possible dissociation of partners, death of partners, and dissolution of the business in the partnership agreement. That way if the once unthinkable does happen, you and your partners are prepared to resolve the issues according to your wishes and not the way state law would resolve the situation in the absence of a partnership agreement. An experienced business attorney can help make this process a smooth one so that you and your partners can focus on building your business with peace of mind.
FAQ’s
- Do I really need a partnership agreement when I like the statutory defaults on how certain issues are resolved?
- What are examples of statutory items that you cannot “draft out of” in a partnership agreement?
- What common disputes arise from a partnership agreement or the lack of a partnership agreement?
- What are common areas where partners typically disagree in drafting the partnership agreement?
- Does a partnership agreement have to be lengthy to be effective?
Additional Contract Law Resources:
http://www.forbes.com/sites/amandaneville/2013/06/07/five-clauses-every-partnership-agreement-needs/
If you are in need of having a partnership agreement drafted or advice on how to protect your interests as a partner, it is important to find an experienced business law attorney in Encinitas. Click here or call 760-517-8409 to schedule a free consultation.