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2 clauses you should have in a partnership agreement

On Behalf of | Mar 25, 2022 | Business & Commercial Law |

Disagreements are inevitable in any partnership. Even minor conflicts that are left unaddressed can escalate into full-blown disputes with costly financial and legal implications. 

Besides outlining each party’s rights and responsibilities, a thoughtfully written partnership agreement can greatly help you prevent or settle conflicts that may arise during the course of your partnership. 

Here are important clauses that should never miss in your partnership agreement.

Each party’s contribution to the partnership

It is not uncommon for partner contributions (skills, capital and time) to vary depending on each party’s strength. While some partners contribute the finances needed to get the business off the ground, others may bring the managerial skills necessary for day-to-day operations. It is important that each party’s contribution is clearly stated in the contract. 

It is also important that any anticipated contributions to the business be included in the contract. For instance, if the initial capital is not sufficient to get the business into a state of profitability, then the partnership agreement should indicate how and when additional funds will be injected into the business. This will help prevent unpleasant surprises and potential conflicts down the road. 

Profit and loss allocations

Businesses partnerships are formed with the goal of making profits. The partnership agreement should clearly outline how and when these profits will be shared. Additionally, the partnership agreement should indicate what will happen should the business make a loss. 

Starting a business is, without a doubt, an exciting milestone. Whether you are starting off as a partnership or bringing onboard a new partner to an already existing business, it is important that you draft a partnership contract that will safeguard your rights and interests.