Common Errors and Omissions in Partnership Agreements

When you look at them from the outside, partnerships seem so informal. It just seems like a few people getting together to handle a business matter. In fact, the informality that comes with partnerships is one of its major benefits.

But that doesn’t mean that you can’t make mistakes—you can. Many of those mistakes can be avoided by having a clear, complete and written partnership agreement, but even that’s not enough, because too often people draft and agree to a partnership agreement, only to find they have made some crucial mistakes or errors or omissions in their partnership agreement.

Using a good business or corporate attorney can help you avoid these kinds of mistakes:

Payment and Profit Division Details

It’s likely that who gets paid what will be the first thing on your mind when drafting a partnership agreement. But too often, partners leave out crucial details that have to do with division of profits.

For example, what is a profit—that is, how is it calculated? What qualifies as an expense that comes off the top before determining profits? Does an expense that comes off the top before calculating profits include repayment of partners’ investments in the company?

What happens to partners when they leave the partnership—or worse, if they aren’t pulling their weight or doing the duties you intended them to do? Do they still get their division of profits?

Who Does What?

Similar to this is division of labor. In some partnerships, there are partners who don’t do much work at all—their contribution may be money or funding. What is expected of each partner needs to be clearly spelled out. And if a partner isn’t doing his or her job, what happens then, and for that matter, who will determine when a partner is or is not doing his or her job?

Statement of Purpose or Mission

You probably formed a partnership to go into a particular business together. Your partnership agreement should say what that purpose is. Some people say the partnership can conduct “any and all business,” or similar language, but that isn’t always a good idea.

Partners have a duty to work within the mission of the partnership. That means that, to avoid partners who stray, or get the partnership involved in unwanted business ventures, you should have a statement of purpose that clearly says (and limits) what the partnership is supposed to do or work on.

When Partners Leave Involuntarily

Many people plan for what will happen if a partner leaves. But they don’t make plans for when a partner leaves against his or her own will. Imagine for example, a partner gets divorced and now his ex has his interest in a partnership, or a partner goes to jail, or filed bankruptcy and loses his share to the bankruptcy creditors.

The partnership agreement should address what happens, to avoid the partnership from having to work with people the partners don’t want to work with.

Start your partnership or business venture the right way. Let us help. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.

Sources:

investopedia.com/ask/answers/041015/which-terms-should-be-included-partnership-agreement.asp

uschamber.com/co/start/strategy/how-to-write-a-partnership-agreement