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What elements should you include in your partnership agreement?

On Behalf of | Dec 30, 2015 | Business Litigation

As was discussed in a previous post, disputes sometimes arise between business partners in Texas, and elsewhere. Perhaps one of the easiest ways for you to prevent these types of issues from affecting your business is to establish a solid partnership agreement. In order to ensure that your business is able to withstand the inevitable ups and downs of your relationship, there are certain elements, which you should ensure are included in your partnership agreement.

In some cases, you and your partner will each hold equal shares of your business. In others, however, one of you might have more equity than the other. Thus, it is advisable for you to include the percentage of ownership in your partnership agreement. This may help ensure that everyone is on the same page, and will eliminate some disputes in the event you choose to part ways down the road.

Often, business disputes between partners arise during the decision making process. Therefore, the U.S. Small Business Administration recommends that you outline a process for making business decisions in your partnership contract. This may include specifying whether all major decisions must be unanimous, or if one of you will have the final say when an agreement cannot be reached between you.

Money, including your business’ profits and losses, may also contribute to some partnership disputes. By ensuring that you and your partner are in agreement regarding how the company’s money should be allocated between you from the outset, you may avoid issues that could affect your business’ profits and longevity. Additionally, your partnership agreement should specify whether you and your partner will be re-paid for your initial investments, and when.

When creating a partnership agreement, it is also suggested to consider how death or disability will affect your business. You might find it helpful to include stipulations regarding who will make decisions on your behalf, or who will inherit your shares in the business, should the unexpected happen. You and your partner must decide whether you want to each other’s beneficiaries to have a say in what happens to your business in the event one of you dies, or becomes incapacitated.

While this post has provided an overview of what should be included in Texas partnership agreements, it is important to keep in mind that each case is unique. Therefore, this should be considered only as general information, and not as legal advice. 


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