A partnership in business is similar to a personal relationship in that all parties involved should possess a clear understanding of what partners expect from them and what they can expect in return. The major difference is that with business partnerships in California, this understanding needs to be captured in writing.
Partnership agreements are contracts signed by the individuals involved in a business partnership. These agreements detail the specifics of the working relationships and often include ownership percentages, profit distribution, and a description of each parter’s job duties. It is best to draft partnership agreements as early in the business formation process as possible.
A good partnership agreement is drafted with every possible situation the partners may encounter in mind. This agreement is particularly useful as a safeguard against situations where partners may become involved in a disagreement, experience a bit of confusion, or find it necessary to make changes.
In addition to settling potential disputes between partners before they take place, a partnership agreement will help the company avoid issues with the IRS or other tax agency. The partnership agreement should clearly state the tax status of the business and show that acceptable accounting methods and tax practices are in use.
Partnership agreements are great for avoiding legal problems by specifying the liability possessed by each partner. The partnership agreement should also discuss the group liability shared by all partners when an issue with a single partner arises.
Partnerships and other types of businesses enjoy a much better chance of success when they are set-up correctly from the beginning. Understanding the forms and contracts needed to complete the process will help to protect all parties involved with a business as well as the business itself. An experienced business attorney may prove beneficial for groups or individuals needing help with the legalities of starting and operating a business.