What to Keep in Mind When Using a Partnership Agreement Template
There's no denying the excitement of launching a business, but this time can also be rife with risk. A few wrong moves can cause a world of trouble, especially if you contribute capital to get your venture started. Protection is available in the form of a partnership agreement, which outlines both the rights and responsibilities of the company's partners.Download Template
Not sure how to proceed? Keep reading to learn best practices for developing and signing a partnership agreement — and reasons why a partnership agreement template is a critical component of this process.
Important Clauses in Partnership Agreements
While partnership agreements can hold major differences based on the industry and the relationship of the partners, all agreements should include the following clauses:
- Partnership name and location. This section should be self-explanatory: what will the partnership be called and where will its premises be located?
- Partnership term. When, exactly, will the formal relationship as partners begin? Be sure to also mention that the partnership will continue until both parties agree to dissolve it.
- Initial capital and withdrawal terms. This clause should state the year in which the partnership's initial capital was established. It should also explain that the partnership's capital cannot be withdrawn unless agreed upon by both parties in writing.
- Capital contribution. How much capital will each party contribute to the business? Explain not only the initial plans for providing capital, but also, what will occur if the initial capital does not prove sufficient to make the business profitable.
- Salaries. Disagreements regarding salary are often at the heart of partnership conflicts, so it's important to outline pay clearly in the initial agreement. This clause can simply state how much each partner will earn per week, month, or year. Additionally, this section should explain how salaries will be deducted before determining net profits.
- Arrangements for buying out the other partner. What happens if somebody withdraws from the partnership or passes away before it's officially dissolved? Don't forget to outline procedures for how the remaining partner can purchase the remaining interest of the deceased or withdrawing partner.
Partnership Agreement Best Practices
The clauses highlighted above provide a great starting point, but it's important to proceed with caution as you review and sign your contract. Make the most of your partnership agreement template by following these best practices:
- Use a partnership agreement template. While it's possible to draft a partnership agreement on your own, this approach is not recommended. Without guidance, you risk leaving out important clauses. Instead, use a detailed partnership agreement template that provides opportunities for customization.
- Double-check to ensure that all terms are in your best interest. Yes, partnerships thrive on cooperation and collaboration, but the ultimate purpose of the partnership agreement is to protect yourself. Take a close look at all clauses and terms so that you don't later encounter any unwelcome surprises.
- Review the agreement regularly. How your partnership functions may change over time. Terms that made sense when you initially drafted your partnership agreement may eventually not be feasible. If your approach evolves, your original agreement may no longer be relevant — and as such, it might stop providing the full protection you and your partner need. To prevent this problem, review your agreement on a regular basis and make amendments as needed.
Mistakes to Avoid When Completing a Partnership Agreement
Even when you're equipped with an excellent partnership agreement template, it's easy to make mistakes as you review and sign this essential document. To limit future problems, avoid these key mistakes:
- Relying on verbal agreements or updates. When in doubt, get everything in writing. As mentioned previously, amendments can always be added if you make adjustments to your partnership approach over time.
- Using vague language. Details are crucial when drafting a partnership agreement. There should be no question as to what the clauses mean or how they might impact the partners. Dates, dollar amounts, and percentages should all be designated. Don't leave anything up to interpretation.
- Not adjusting partnership agreement templates. While a detailed template provides a great starting point, it should be adapted based on the realities of your business. If you have specific preferences regarding distribution of profits and losses, dissolution arrangements, or other concerns, be sure to address anything that diverges from the language in the template.
The process of forming a partnership includes many risks, but it can also pave the path to a rewarding business venture. Protect yourself with an ironclad partnership agreement. Reviewing and signing this essential document can be straightforward when you make the most of Nitro Sign.