When should a partnership agreement be created?

A partnership is created when two or more individuals decide to form a business or enter an endeavor together. The partnership agreement is meant to clearly define the terms of the partnership, clarifying the responsibilities and benefits for each partner.

In a general partnership, each partner is entitled to an equal voice in the management of the business. Each partner is also entitled to an equal share of the profits, without regard to individual contributions, which the agreement should clearly state. Additionally, each partner is expected to share any incurred losses of the business. An agreement clearly defines these lines of responsibility to avoid disagreements among the partners in the future. Each partner is clearly defined and declared to be an equal agent of the partnership. The agreement should also clearly define that should the business be liable for any torts or damage, each partner accepts equal responsibility for the same. A partnership agreement can also define the role of each partner in the business and, if warranted, that no partner shall form any competing businesses throughout the life of the current partnership. The partnership agreement should also state protection provisions in the event one partner is personally sued outside of the business, so that the assets of the other partners within the business cannot be included. Partnership agreements set up the terms of benefits and responsibilities right at the onset of the business relationship so that there is no confusion in the future.

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