What Is a Partnership Agreement?
If you and someone you know are ready to start a business venture together, or you want to team up your existing business with another person or company, a legal partnership agreement may be a good option for you. While many businesses are started by two people simply working together, setting up a partnership agreement is an important way to protect many of your rights.
Any two people or businesses can create a partnership agreement. Each of you will contribute something to operate your business like labor, skills, expertise, money, property, or a combination of these. In return, you and your partner will share an agreed upon portion of the profits you earn.
A partnership agreement states the responsibilities of you and your partner, the terms of your partnership, and how the money you make will be distributed.
Advantages of a Partnership Agreement
The biggest problems faced by many new partnerships are disagreements that arise from a lack of understanding about each partner’s role in the business, who owns what, the amount of their investment, or the nature of each partner’s compensation. Having a well-thought, specific partnership agreement that addresses the many issues of operating a business is critical for limiting confusion and keeping things running smoothly.
The Differences Between a Partnership and a Corporation or LLC
A partnership is much easier to manage than other business structures like a corporation or LLC. There are fewer administrative hassles, less paperwork to file with the government, and filing for taxes can be greatly simplified. This will give you and your partner the flexibility to focus on growing and developing your business. Also, you and your partner will be able to combine your capital when applying for a loan or lines of credit, which can help raise the funds you need to get your business off the ground.
However, partnerships have none of the liability protections that are granted to a corporation or LLC. If your business goes bankrupt, falls deep into debt, or is the subject of a lawsuit, your personal finances and assets may be in jeopardy. Furthermore, all liability for your business is shared by you and your partner.If your partner or even an employee is negligent or commits a crime during the course of normal business, you will be held just as liable as your partner.The limited liability of corporations and LLCs offers personal protection against many of these issues. Click here to learn more about the differences between a partnership and a corporation or LLC.
Use The Document People to Create Your Partnership Agreement
To make sure that every partner understands his or her role, responsibilities, and compensation, you’ll want a specific partnership agreement that is customized to fit your business. We can help you draft a partnership agreement that will give you and your partner the security you deserve.