Download these Free Partnership Agreement Templates to help you write down your Partnership Agreement effectively. I am sure you would also like to check out our Employee Non-Compete Agreement Templates Collection.
A single person can likely run a big company or organization. Even if he somehow manages to perform all responsibilities for a while, he will need to add some other partners in the business to help him out. This partnership can be temporary i.e. for a year or 3 years or it can go on as long as the company exists.
When such a situation happens, a business includes new partners in the company for any reason. The partnership agreement is created and signed by the existing owners or partners of the company and the new partners. This is an essential document. It is obvious that without this agreement, the partnership is not possible to occur as either the company or the new partners won’t allow entering into a company without a legal document i.e. partnership agreement.
Brief Description of Partnership Agreement:
If you are one of those who think of partnership and joint venturing as the same thing, you are wrong. In reality, the partnership is completely different from joint venturing in many aspects. For example, unlike joint venturing, the partnership is supposed to last as long as the company exists. Also, unlike joint venturing, partners have more rights and better ownership in the company but the partnership also comes with great responsibilities and a lot to lose on both ends. This is why when a company decides to enter a new partner in the business on a long-term basis, they consider it very important and go through every aspect thoroughly so that nothing is missed and every element is covered with the legal documents and agreements.
The agreement written and signed between the new and existing partners or owners of the company is known as the partnership agreement. This is a very important legal document. If the partners are supposed to share the profit in the business, they are also responsible for the operations and conflicts in the company. The partnership agreement usually includes information about the partners, the legal rights of each partner, a form of partnership, profit sharing or ownership rights of each partner in the business, and the legal value of each partner in the business.
Key Elements to add to the Partnership Agreement:
- Name of the existing owner(s) and partner(s) in the company
- Name of the new partner(s) to include in a business
- Details of the business with explained operations and functions
- Reasons for including new partner(s) in the Company
- Details of the partnership
- Compensation/shareholding/percentage in profit for the new partner(s)
- Validation of the partnership (if applicable)
- Non-disclosure clause if a new partner leaves the company
- Ownership of the intellectual property if a new partner leaves the company
- Rights, responsibilities, limitations, and obligations of each partner
- Terms and conditions of the agreement
- Mutually agreed clauses of the agreement
- Termination of the agreement
- Results of violation of the agreement
- Validation and limitations of the agreement
- Signature of both parties with witnesses and legal advisers/attorneys
Free Partnership Agreement Templates
Here is a good-looking and well-drafted Strategic Partnership Agreement Sample that can assist you in preparing your agreement easily. Downloading this sample agreement, you can study and develop a useful version as per your requirements.
Common Mistakes in a Partnership Agreement
The process of forming a partnership is just like making a strong home foundation for the business which enables it to grow stronger. More often than not, crafting a precise and detailed agreement tends to be less exciting than the thought of having a partner at your side. Failure to highlight important aspects or using unclear terms can result in disagreements, disputes, and at times loss of money. The following are some of the most typical errors people make in creating partnership agreements.
Missing Key Elements in the Agreement
In partnership agreements, it’s a common mistake for people not to specify the roles or duties of each partner. When this — lack of definition — happens, the issue of who does what can become confusing. For example, Partner A may think that Partner B is responsible for money issues while Partner B assumes that it is Partner A who manages them and nobody does anything about it.
Money arguments are hard on partnerships. Expectations among partners can differ without clear provisions of a revenue distribution formula. Consequently, in one instance, a partner may claim a right to a bigger portion because he or she believes that his/her input is more significant compared to others, leading to bitterness.
Every partnership encounters disagreements from time to time. These can develop into serious legal disputes when there is no established means of solving them. In essence, a mediation or arbitration clause acts as a guiding principle in the event of a confrontation.
Partnership often begins with different persons making different and unique contributions in terms of money, knowledge, or time allocations. In equal paying partners they end up misunderstanding each other if they don’t take into account these variations at an early stage. For proper expectation setting and future prevention of grudges, it is essential that every party gives a clear description of his/her role in the project as well as resource availabilities.
Ignoring Legal Requirements
The partnership laws may differ according to state or country and so if you fail to comply with them, you could have your agreement nullified. For instance, some jurisdictions require that certain terms must be expressly provided for within the agreement to be considered valid. If these laws are ignored, your enterprise risks being endangered.
Crafting business documents on your own increases the probability of missing important legal details. Consult professional legal advice when creating a partnership agreement to avoid costly errors in the future.
Using Ambiguous Language
Ambiguous or undefined terms can create opportunities for taking advantage of the situation. For instance, referring to “equitably” sharing profits without explaining what equitable implies may lead to misunderstandings.
Even though it is important that the legal standing of the agreement should be guaranteed, incorporating lots of legalese may render the document unreadable to the partners. What is crucial is finding the middle way between plain language and procedural exactness.
Neglecting to Plan for Future Scenarios
Partnerships are not eternal. Retirement, personal conflicts, or changes in the market can lead to the separation of people who partner together. Without an exit strategy, withdrawing from the partnership can be a stressful process.
What happens to his share if one of the partners cannot continue? It is because of disputes among surviving partners or heirs, thereby risking the business that happens in absence of succession planning.
Scaling a business by admitting new partners or increasing investments is a provision in partnership agreements that is often ignored. This oversight has the capacity to hamper the opportunities for growth.
