Many people choose to run their business as a partnership, where two or more parties share the responsibilities of running the business. Business partners can formalize their partnership by drafting a partnership agreement to outline how the partnership will operate.
There are two common types of partnerships in California: general partnerships, with two or more general partners equally sharing rights and responsibilities, and limited partnerships, which have general partners in charge of the business and limited partners who are solely investors.
What is included in a partnership agreement?
A partnership agreement is legally binding, so it is important to make sure your agreement includes all necessary information. Your agreement should include and/or address:
- Basic information including the name, location, structure, and description of the business.
- Percentage of ownership interest held by each partner.
- Each owner’s rights and responsibilities.
- Management of finances.
- How decisions are made.
- Liability of each partner if partnership is sued.
- Capital contributions expected from each partner.
- Allocation of profits and losses.
- Dissolution of partnership.
- Addition/removal/withdrawal of a partner.
- Dispute resolution process.
For the successful operation of a business partnership, trust is paramount. A good way to guarantee there are no misunderstandings between you and your business partners is to reduce your agreement to writing and make sure all parties fully understand their rights and obligations. It may be in your best interest to have an expert who specializes in business transactions to draft your agreement or review and edit an existing draft before it is finalized.