A partnership is where two or more persons come together to manage a business with the intention of making profits.
In a partnership, the partners equally share any profits or losses associated with the business. Each partner is also personally liable for any debts or obligations of the partnership itself – in other words, the partnership is not a separate legal entity.
A partnership agreement basically outlines, in written form, the terms and conditions which govern the relationship of the partners pursuant to working together to manage a particular business.
This partnership is suitable for where there are three partners coming together to do business.
A partnership agreement can be entered into in any stage of a partnership. It can be entered before the partners begin doing business, in order to clearly outline all expectations and obligations amongst the partners. It can also be entered into after the partners have already started doing business together, so long as a partnership agreement had not previously been created. In this latter scenario, a partnership agreement will help clarify the expectations and obligations of the partners, that are part of the business.
When using this document, information which will need to be filled out includes:
Jurisdiction in which the partnership is to be formed
Name of the partnership
The business of the partnership
Property and assets of the Partnership
Details of the CEO and Chairman
Respective capital contributions of each party
How many directors can be appointed by each partner
% share ownership by each party
Details concerning the operations of the partnership
All the partners to the agreement should sign the agreement. Each of the partners should receive a signed copy of the final partnership document.
Some characteristics, which are commonly cited as disadvantages of partnerships include:
If two people are running or intending to run a business for-profit together, they should have a partnership agreement.
This is regardless of the relationship between the parties – whether they are family, colleagues or friends, they should all make sure to codify their arrangements in a Partnership Agreement.
A partnership agreement explicitly outlines the terms and conditions in accordance with which partners are to conduct business through partnership.
It helps avoid disagreements – should the partners find themselves in disagreement as to how the operations of a partnership should be conducted, they can simply refer to the partnership agreement.
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