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Do We Need a Partnership Agreement?

Posted by attorney Wadi Muhaisen

Why Get a Partnership Agreement? I trust my Partner.

Most small businesses are formed by just a few passionate people in conjunction with a great idea. With a small business, most owners dive in headfirst without getting to know their business partners, confident that growing profits will smooth over any headaches. Put two people in a room long enough, and they will disagree on something. And without an airtight written partnership agreement articulating how the business will proceed, the once passionate people will devolve into resentful and adamant, and most likely bankrupt.

Common Partnership Problems an Agreement Can Prevent:

  • One partner decides he doesn’t really want to work hard but still wants his share of the profits.

  • One partner believes she should invest the companies profits in new advertising or new labor instead of investing in dividends, accounting, or website upgrades.

  • One partner believes the business should reimburse its partners for expensive client dinners, and the other wants to operate on a shoe-string budget.

  • One partner wants to commit to the business in the long term, and the other is looking for a quick short-sell profit.

Partnerships can be very difficult because each partner may be fully and personally liable for business bankruptcy and liability, regardless of the business percentage owned. And, each partner may make decisions without consulting his or her partner on behalf of the business. Writing out your partnership agreement before these events occur is absolutely essential to a happy business relationship.

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