Tips for Potential Partners Using a Basic Business Partnership Agreement
When entering into any type of a business arrangement, it is important to memorialize the arrangement. Having an agreement in place can spare you from legal issues further down the line. For partnerships, a basic business partnership agreement template could be your best option.Download Template
What We Will Cover Here:
- What Types of Businesses Use Business Partnerships?
- Why is a Business Partnership Agreement Necessary?
- What to Include in All Business Partnership Agreements
- Helpful Resources
What Types of Businesses Use Business Partnerships?
There are various business types which may rely on partnerships between two or more people. Some of these include:
- Financial Managers
- Marketing Professionals
It is important however to note that when entering a partnership, none of the partners involved are free from paying taxes on their profits or losses. Additionally, a partnership does not shield any partner from being personally liable for debt. There are two primary advantages to partnerships, one being they are easy to set up and they often carry a lower tax burden than other business structures.
Why is a Business Partnership Agreement Necessary?
The first thing to be aware of is all partnership agreements must comply with both federal and state regulations and laws. Not only will the partnership agreement include which state’s laws the business will be governed by, it will also clarify the role of the partners.
In general, each partner “buys into” the partnership. Each partner may contribute the same amount, or some may contribute more or less. If the partners each contribute different amounts, then when customizing a basic business partnership agreement template the percentage of ownership of each partner is spelled out in clear language.
Additionally, a partnership agreement should also indicate under what conditions a partnership may be dissolved, and how the partners would handle situations when a partner voluntarily, or involuntarily leaves the partnership.
What to Include in All Business Partnership Agreements
As with all business agreements, you want to make sure you include certain clauses to ensure everyone feels comfortable with the arrangement. Some of the key clauses include:
- Identifying Partners — all names of the partners who will be involved in the business. In addition to the names, you want to include all current mailing addresses.
- Tax Identification Number — typically this is done by obtaining a Federal Employer Identification Number (EIN). This number should be included when you are customizing the basic business partnership agreement.
- Governing Laws — the state or commonwealth where the partners have decided is their main location of doing business.
- Mailing Address — identification of the location where the partnership receives mail and services.
- Capital Contributions — this section identifies the individual partners contributions to the business. Generally, these contributions may be in cash, however, in some cases, there may be provisions for hard assets such as business equipment.
- Duties of Partners — in most cases, each partner is not involved in the day-to-day operation of the partnership. However, regardless of their involvement, each partner’s duties should be clearly laid out.
- Sharing of Profits and Losses — the agreement which states which portion of the profits and losses each partner is responsible for. Generally this amount is determined by the percentage each partner has contributed to the partnership.
- Exit From Partnership — a clear statement which explains how the partnership assets and liabilities will be divided if one partner decides to leave the partnership voluntarily, or involuntarily (death or disability).
- Acceptance of Liabilities — each partner must be made aware they are personally responsible for the liabilities of the partnership.
- Dispute Resolution — the method of resolving disputes between partners. Normally this would be through negotiations between partners. There may be mediation or arbitration options.
- Payment of Legal Fees — in the event there is a dispute which must be resolved through the courts this clause explains who is responsible for legal fees.
- Encapsulation and Changes — a statement indicating agreement is in its finalized state and how changes would be made if needed in the future.
Make sure when you are using a basic business partnership template you are not leaving any important issues to chance.
- Tax Information for Partnerships
- 5 Clauses Every Partnership Agreement Should Include
- 4 Types of Business Partnerships: Which Is Best for You?
- What Is a General Partnership?
Finalization and Filing of Partnership Agreements
Once each partner is comfortable with the agreement, and you have completely customized your basic business partnership agreement, then all signatures of the partners must be captured. Fortunately, this is a simple process which can be accomplished using Nitro. Whether you need a partnership agreement finalized or to get any of your contracts signed Nitro Sign is your best option.