There are multiple types of business structures and a partnership is just one of them. In general, a partnership involves 2 or more people carrying on a business as co-owners and sharing the profits earned. Each partner acts on behalf of the other partners and are liable for the actions of the other. So, it is very important to protect your interests from the get-go by creating a partnership agreement. However what’s not always clear is whether your partnership agreement has to be in writing.
What is a Partnership Agreement?
A partnership agreement sets out the terms of your business and protects the interests of you and your partners. Here are just some of the things that generally appear on every partnership agreement:
- Partnership name;
- Amount of money that each partner will contribute to the partnership;
- Distribution of profits and assets;
- The roles and responsibilities of each partner;
- How to appoint new partners and what to do if a partner leaves;
- What procedures to take if an internal dispute occurs; and
- How to dissolve the partnership
Types
When entering into a partnership agreement, you should first be sure of what type of agreement would be best suited to your business. The two most common types of partnership agreement are: normal and limited.
Normal partnerships are the simplest to create. It is a suitable structure when more than one person want to carry on a business together in a simple structure. For example, a business carried on by a husband and wife.
Limited partnerships are a little more confusing. There are two types of partners involved in a limited partnership: general partners and limited partners. The difference between general and limited partners is that limited partners are not as ‘hands-on’ in the day-to-day runnings of the business compared to general partners. Limited partners also have limited liability for the partnership’s debt obligations.
Does It Need To Be In Writing?
No, your partnership agreement does not have to be in writing. However, like any other contractual agreement, it never hurts to have it written down. By having your partnership agreement in writing, it will help you to avoid future disagreements and confusion on what terms were initially agreed upon by each partner.
If you are unsure of whether a partnership is the right business structure for your business or need help writing a partnership agreement then find a contract lawyer today.
