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 vision, mission, and goals for the business. But under the pressure of starting a new business, problems do arise and can turn into major setbacks. Therefore, a small business partnership agreement template should be formulated to govern the business.
Learn more about a small business partnership agreement below and download a template to get you started.
What is a Small Business Partnership Agreement?
A small business partnership agreement simply defines the clear guidelines for the successful operations of a small business partnership and the roles to be played by each partner. The partnership agreement includes how profits and losses are to be shared amongst the partners, how the business will run in case of withdrawal of a partner, and the rights and obligations of each partner.
When to Use a Small Business Partnership Agreement?
You should use a small business partnership agreement if you want 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 partners in business. For instance, in case a partner withdraws from the business, there should be outlined guidelines on whether the partnership should be dissolved or reformed.
There will always be conflicts and tough decision-making in the life span of a business. 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 come up with long-term solutions to dilemmas within the business. Who needs to make the final say? Which decisions require undivided votes by the partners? By drafting down a non-biased decision-making structure, you will have a peaceful business.
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.
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?
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 fail to approve of the future of your business.
Make sure you outline each partner’s role in the formation of the business and running of finances. In your small business partnership agreement, define what each partner brings to the table- not only monetary value but also 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.