Key Elements of a Business Partnership Contract in California
Key Elements of a Business Partnership Contract in California
A real businessman values his partners like friends and his partnership like friendship.
- Amit Kalantri
Partnerships are easy to form, easy to operate and very inexpensive. There are no formalities (such as annual meetings or filings) and they avoid the double taxation of corporations.
One drawback is that all partners are subject to personal liability for all debts, losses, and liabilities of the Partnership. Each partner is also generally liable for every other partners' actions on behalf of the partnership.
Poorly organized partnerships can lead to nasty disputes among partners in the future. A partnership agreement can clarify the key elements of a partnership in a written agreement. Here's a list of the major areas that most partnership agreements should cover:
Name of the partnership. One of the first things you must do is agree on a name for your partnership. You can make up a new Trademark like Philadelphia Web Design or use your own last names, such as Smith & Jones. Either way, it is a good idea to make sure that the name isn't already in use, that a web url is available and then register a business name statement with your county clerk.
Contributions to the Partnership. It's critical that you and your partners work out and record who's going to contribute cash, property, or services to the business before it opens -- and what ownership percentage each partner will have. Disagreements over contributions have poisoned many promising partnerships.
Allocation of profits, losses, and draws. Decide whether profits and losses will be allocated in proportion to a partner's percentage interest in the business. Define the rules for partners to withdraw cash from the business. You and your partners may have different financial needs and different desires about how the money should be divided up and distributed.
Management duties. Who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your Partnership and be sure you've spelled it out in your partnership agreement.
Electing new partners. Agree on a procedure for selecting and on boarding new partners. Define requirements such as capital contributions and voting rights.
Withdrawal or death of a partner. Set up a clear buyout scheme in your partnership agreement.
Resolving disputes. It would probably benefit all partners if the partnership agreement provides for alternatives to litigation for dispute resolution, such as mediation or arbitration.