What is a Small Business Partnership Agreement?
A small business partnership agreement is a written contract between partners in a small business, setting out each partner’s duties and rights. It prevents misunderstandings and disputes and protects the company and its partners.
The partnership agreement also includes how profits and losses are shared amongst the partners and how the business will run in case of a partner’s withdrawal.
A successful small business partnership is akin to a strong relationship. Both entail not just short-term mutual benefits but long-term compatibility. You need to have the same business vision, mission, and goals. However, under the pressure of starting a new business, problems arise and can turn into major setbacks.
Therefore, a small business partnership agreement template should govern the business.
When Should You Use a Small Business Partnership Agreement?
You should use a small business partnership agreement to form a small business partnership. A partnership agreement is a vital document in the decision-making process of a business.
The absence of such an agreement can negatively affect the decision-making process of both business partners.
For instance, if a partner withdraws from the business, guidelines should be outlined on whether the partnership should be dissolved or reformed.
Conflicts and tough decisions will always occur during a business’s lifespan. A partnership agreement helps to reduce and solve disputes between you and your partner.
What to Include in a Small Business Partnership Agreement
Before the formation of any successful business partnership, there are crucial factors that should be put into consideration.
The following factors form the bedrock of any successful joint business:
- Decision making
It is important to note that you and your partner will not agree on everything concerning the business. Therefore, you should develop long-term solutions to dilemmas within the business.
Who needs to have the final say? Which decisions require undivided votes by the partners? Drafting a non-biased decision-making structure will ensure a peaceful business.
- Distributions
The main intention of building the business is to maximize the profits received. Your small business partnership agreement should entail how you will divide business profits and how much each partner will receive.
- Ownership
Your agreement should clearly describe how ownership will change in various scenarios. What happens when a partner withdraws? What are the chances of buying out or absorbing a new partner? What happens if one partner dies, retires, or goes bankrupt?
- Dispute resolution
If things fall apart between partners, how will the disagreements be resolved? Deciding how you will handle disputes sets the foundation for a friction-free business.
- Critical developments
Sometimes, the unpredictable happens, and your small business partnership agreement should address possible concerns and circumstances, such as; what happens when a partner falls sick. What are the retirement provisions?
- Dissolution
A partnership agreement should entail the steps to be taken when legally terminating the partnership. You might opt to do this after you and your partners disapprove of the future of your business.
- Contributions
Ensure you outline each partner’s role in the business’s formation and financial management. In your small business partnership agreement, define what each partner brings—monetary value, time, customers, efforts, liabilities, etc.
Small Business Partnership Agreement Sample
The below small business partnership agreement template allows you to quickly fill in the blanks and get your partnership up and running. Download in PDF or Word format.
