Key Clauses in Business Partnership Agreements
Understanding business partnership agreements (BPAs) is essential because it ensures all partners are on the same page regarding responsibilities, profits, disputes, and succession. Without one, misunderstandings and conflicts can arise, leading to costly legal battles or even business failure. Let’s learn more.
Business Partnership Agreements 101
Partnership contract terms are more than formalities. They dictate how your business operates, how profits are shared, and how disputes are resolved. One of the first clauses to include in your business partnership agreement is ownership structure and initial contributions. This section should outline the following:
- Percentage of ownership each partner holds
- How additional funding will be disbursed
- Capital contributions and intellectual assets
Partnerships thrive on shared success, so how that success (or loss) is distributed must be clearly defined. Business partnership agreements should, therefore, clarify how profits and losses get divided among partners. They should also define whether distributions will be equally contributed or based on capital contributions.
Decision-making authority is a critical partnership contract term requiring explicit definitions. Your agreement should specify what decisions require unanimous vs. majority votes and the process for cutting ties when partners disagree. This clause ensures that one partner can’t override others unfairly or that decisions aren’t stalled or deadlocked.
Roles and Responsibilities
Business partnership agreements define each partner’s specific requirements, responsibilities, and job functions. They also outline restrictions on actions, such as signing contracts or incurring debts. Defining these roles prevents disputes and streamlines operations.
Even the most well-structured partnership has inevitable disagreements. A step-by-step conflict resolution process is crucial. Therefore, include a clause for choosing jurisdiction and governing law. No one likes to think about worst-case scenarios, but planning for the unexpected is critical.
Partnerships don’t always last forever. So, your agreement should define buyout terms if a partner leaves and valuation methods for the departing partner’s share. It should also list restrictions on selling shares to outside parties to ensure smooth transitions without harming the business.
Non-Compete Clauses in Business Partnership Agreements
Businesses evolve, and so should your business partnership agreement. Contract terms should specify how modifications to the agreement will be made and under which conditions the partnership can be dissolved. Including amendment and termination procedures helps provide steps for handling outstanding debts and obligations if that happens.
To protect business interests, partnership contract terms should include non-compete clauses that prevent partners from starting a competing business for a set period after leaving. For maximum security and long-term viability, also include a confidentiality agreement that restricts the sharing of trade secrets and client information. Ask an estate planning attorney to help draft an ironclad document.
Why You Need an Estate Planning Attorney for Business Partnership Agreements
An estate planning attorney can help structure business partnership agreements and contract terms. Here’s how:
- Succession Planning
- Asset Protection
- Tax Liability Minimization
- Buy-Sell Agreements
Clear plans ensure business continuity without unnecessary legal battles, especially if a partner dies or becomes incapacitated. Estate planning attorneys often suggest securing ownership through trusts or legal entities to protect assets from lawsuits, creditors, and liabilities.
For example, proper estate planning can reduce taxes that might otherwise burden surviving partners or heirs. Moreover, these agreements ensure the remaining partners can buy out their share under fair terms. Schedule a consultation with an experienced estate planning attorney to learn more.
Takeaway
A handshake and good intentions might get you started, but a solid business partnership agreement is what keeps things running smoothly. Get the fine print handled ahead of time. Contact the Nicole Pavlik Law Firm to get started.