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Key Partnership Agreement Provisions

A partnership agreement is a contract between two or more business owners who wish to establish a formal relationship governing their joint venture. It outlines the rules, roles, and responsibilities of each partner in the operation and management of the business, including profit-sharing arrangements and decision-making processes. A comprehensive partnership agreement helps prevent disputes by clearly defining expectations and provides a solid foundation for future growth.

Essential Clauses to Include​

1. Partnership Purpose and Scope​

  • Define the main objective(s) of the partnership.
  • Specify the scope of business activities, including products or services offered, target market, and geographic area of operation.

2. Roles and Responsibilities​

  • Clearly outline the roles each partner will play in managing the business.
  • Describe responsibilities for financial management, operational decisions, marketing, and other key areas.

3. Capital Contributions​

  • Specify the amount or value of capital contributions each partner is expected to make into the partnership.
  • Outline any requirements for additional capital investments beyond initial contributions.

4. Profit-Sharing Arrangements​

  • Define how profits will be divided among partners.
  • Consider including a formula or percentage-based split to ensure transparency and fairness.

5. Decision-Making Process​

  • Establish how decisions will be made, whether through consensus, majority vote, or other methods.
  • Specify any requirements for unanimous approval on certain matters, such as major financial transactions or business strategy changes.

6. Dispute Resolution​

  • Outline a procedure for resolving disputes among partners, including steps to take before seeking external help.
  • Consider mediation or arbitration as alternatives to litigation.

7. Accounting and Auditing Procedures​

  • Specify how financial records will be kept and reviewed.
  • Determine the frequency of audits and who will perform them.

8. Term and Termination​

  • Define the duration of the partnership agreement, including start and end dates.
  • Outline conditions under which a partner can leave the business or have their ownership interest terminated.

9. Dispute Over Business Operation​

  • Establish procedures for handling disagreements over how to run the day-to-day operations of the business.
  • Consider specifying key performance indicators (KPIs) to evaluate progress and make decisions based on data-driven insights.

10. Amendments and Changes​

  • Specify what changes can be made to the partnership agreement, by whom, and under what circumstances.
  • Establish procedures for updating financial information or revising profit-sharing arrangements due to business growth or change in circumstances.