One of the biggest financial decisions of your lifetime is starting a business. The success or failure of your venture depends on careful, detailed planning. 

A business partnership complicates every decision, even when you know the person well. You never know when you might find yourself in a dispute. This is why a partnership agreement is critical. 

What a partnership agreement means 

On the surface, the definition is obvious. The agreement establishes written conditions about the relationship between you and your partner. The document should be as thorough as possible, covering all aspects of the partnership: 

  • Rights and duties of partners 
  • Standards of conduct 
  • Management responsibilities 
  • Decision-making 
  • Vacation, sick leave and absentee policies 
  • The transfer of partnership shares 
  • How to change the agreement 

What else a partnership includes 

Partnership agreements vary depending on the nature of the business. Some sections, though, apply to all arrangements. You need, for example, to name the partnership, establish a main office and decide on other basic matters. 

Other terms are very specific. They detail the contributions of the partners, including financial, intellectual and service. They also determine how business profits and losses apply to each partner. 

The agreement also covers what happens when someone leaves the partnership. Other common clauses govern non-competition, non-disclosure, non-solicitation, arbitration and mediation. The goal, remember, is covering all of your bases. 

Partnership agreements establish ground rules that allow for quick decisions under any circumstance. An agreement can resolve disputes before they threaten the viability of your business. 

What a partnership agreement means for your future 

Planning is the key to the success of any business. As such, a solid partnership agreement is a vital part of your winning formula. 

Covering every scenario when you operate a business with one or more partners is complex. Circumstances change, so treat the agreement as a living document. Review the agreement for updates to assure it works in the interests of everyone.