You write your shopping list down. You put pen to paper when a thought you want to keep comes to mind. So, when entering into a business partnership, wouldn’t it be wise to write it down, too? And, if you don’t journalize your agreement in writing, would you be breaking any laws? According to Josh Hollingsworth, a partner with Barnes & Thornburg LLP in Indianapolis, there is no law requiring a partnership agreement be in writing and, such an arrangement can be made verbally. But having a written partnership agreement negates the potential that faulty memories or fraud mar the partnership, he says.
What to include
A thorough partnership agreement covers the gamut of the relationship between the partners. Hollingsworth, whose law practice focuses on entrepreneurial services and mergers and acquisitions, says a detailed agreement should include the following:
- Ownership percentages: who owns what?
- Management: who is entitled to run the partnership and make decisions?
- Scope: what is the purpose of the partnership?
- Dissolution: how the partnership can be dissolved?
- Transfer restrictions: can the partnership interest be transferred? What happens when a partner dies?
Helpful resources to consult
While the Internet is generally a bastion of information on every topic, Hollingsworth warns it is not the place to find an excellent partnership agreement. “Most of the forms I have seen online are not only bad, use of them can be dangerous. I have been involved in several disputes involving client-drafted partnerships and the clients have spent an enormous amount on these disputes,” he says.
Therefore, says Hollingsworth, an attorney familiar with business agreements and contract negotiations is the best resource to consult. For example, an experienced attorney will likely be familiar with creating both simple partnership agreements as well as complex documents.
It is important to note that each state (except Louisiana) has its own laws governing partnerships. Those statutes dictate the ground rules for establishing, maintaining and dissolving a partnership and should be consulted and incorporated into an effective, comprehensive partnership agreement.
Tami Kamin Meyer is an attorney and writer in Ohio.
