Partnership Agreements 101
Partnership agreements are a legal document between partners that determine how the partnership is to function under the law. They can be short and written simply, often being no more than a couple pages in length. They can also be quite comprehensive and several pages long. Typically the length and thoroughness of a partnership agreement will depend on the size of each partner’s individual assets and importance of the industry.
The main point of a partnership agreement is to provide a legal contract between the partners about how business decisions will be made and how assets will be handled . For instance, a partnership agreement might give one partner the right to make certain decisions without the consent of the other partners. Without a clear partnership agreement, there is a greater chance that more public and long court battles will ensue for control of company assets. Additionally, a company with a good partnership agreement can also better address certain contingencies ahead of time rather than waiting until after the problem occurs.
Essentials of a Partnership Agreement
When embarking on a new business venture with others, it is wise to have an experienced attorney write the partnership agreement to ensure that nothing has been overlooked. Many business people enter into agreements with family, friends or close colleagues thinking that the relationship will last forever. However, all business relationships last only as long as the business itself. Thus it is important that general things be set out in writing at the inception of the business relationship so as to minimize conflict later. Important elements of an agreement include:
Roles and Responsibilities
Your partnership agreement should clearly set out what each partner’s roles and responsibilities are. This should be set out in writing with some detail. For example, what percentage of time each partner will dedicate to the business, who will deal with customers, finance, technical aspects, etc.
Capital Contributions
It is important that the capital contributions be set out in writing so that liability can be determined at a later point. It is common that the business owners will put cash or assets into the company – what is put in, how is it valued, how is it handled if contributions do not come out even, etc.
Profit Sharing
Your partnership agreement should clearly set out each partners share of profits and losses. This could be 50/50, 60/40, etc. However, just as important is how money will be set aside for taxes, re-investment, personal draws, etc.
Dispute Resolution
The partnership agreement should contain a dispute resolution mechanism to allow for disputes between the parties to be resolved. This can be as simple as a discussion amongst all of the partners or as complicated as binding arbitration.
Why You Should Hire a Partnership Agreement Lawyer
The role of a partnership agreement lawyer is paramount to establishing a well organized and legally compliant partnership. The lawyer is usually involved in the initial partnership formation, and its duties extend well into the future as the partnership evolves.
When partners consult with their lawyer for the first time about the partnership agreement, the attorney will typically review their business plan and any available background information on each partner, before drafting a partnership agreement. The lawyer will create a written partnership agreement with the stated intention of preventing the misunderstandings or dissention later on. The agreement will delineate fees and responsibilities, how disputes are to be handled, how partners can leave the partnership or dissolve the partnership, etc., with special attention to ensuring that the partnership is in compliance with all relevant legal statutes, regulations or guidelines.
The lawyer’s participatory role in developing the partnership is ongoing. When an issue with a client are a little murky, which is often the case after significant changes to the partnership such as a new partner coming on board or a partner leaving the partnership, consultation with a qualified lawyer will help clear up ambiguities and interpret the language of the partnership agreement. In the absence of specific language in the partnership, the lawyer will draft a proposed amendment to the existing partnership agreement, and usually consult with other partners before executing it. Some changes are rather minor, but sometimes a new partner will have new ideas that the rest of the partnership is not receptive to, leading to serious disagreements. The right lawyer is one who understands the nuances of the personalities and the business, unafraid to mix diplomacy with due diligence to move the partnership forward.
At times, a lawyer will determine that the issues concerning a partnership are going to necessitate legal action. An attorney that specializes in contracts will understand where the indemnification clause in a partnership needs to be expanded or amended. A lawyer will also know whether certain contingencies are legally defensible when assessing an external agreement’s compliance with the partnership agreement.
The role of a partnership agreement lawyer is clear-cut, during the entire life of the business. They will be able to advise, amend and litigate as necessary with unerring insight. The practitioner will be adept at selecting a course of action that is objective, yet most beneficial to the partners and other stakeholders of the business.
Why Hire a Partnership Agreement Lawyer
Having a lawyer write or review your partnership agreement is always a good idea. One of the major benefits of hiring a lawyer to draft an agreement is that they are familiar with the legal language. Drafting such a document by yourself would likely result in language that, while maybe having the same meaning as what a lawyer would write, carries a different meaning in the eyes of the law. Therefore , the meaning of the words in the agreement may not match what the partners intended. A lawyer will also be able to better customize your agreement because they know what elements are already commonly included and what may be strange or unnecessary for your new business. This helps ensure the parties get everything they want and nothing they don’t want. Using a lawyer to draft or review your partnership agreement can help mitigate risks in your partnership. They will get fully acquainted with the details of your partnership, including any outstanding issues so that their path forward is clear from the very beginning. In addition, they will alert you to any issues with your plans and highlight areas that may result in a dispute later on in the partnership. And above all else, a lawyer will be able to point out all the ways the law is insufficient and spelling out contingencies is necessary.
How to Find the Best Partnership Agreement Lawyer
When seeking legal help for a partnership agreement, it’s essential to choose an attorney who is not only knowledgeable in the field, but also experienced in navigating the complexities of partnerships. To find the right lawyer for your partnership agreement, start by researching firms that have a dedicated business law or corporate law practice group. This can usually be found on the firm’s website or through online legal directories.
Once you’ve compiled a list of potential candidates, it’s important to meet with them in person. A consultation will give you a feel for their expertise and suitability for your specific situation. Ask pertinent questions about their experience. How long have they been practicing business law? Are they familiar with partnership agreements specific to your industry?
Inquire about successful partnership agreements they have previously worked on. A good lawyer should be able to provide examples of past success with other clients. References also go a long way. Request the contact information of previous clients and speak to them about their experience with the partnership agreement lawyer.
Remember that at the end of the day, your attorney should be someone you feel comfortable with and confident in. You want to hire an attorney who will protect the interests of your current and future business partners. Make sure you also select a firm with a solid track record of successful partnership agreements.
The Cost to Get Legal Services
The cost of obtaining legal services for business interests can vary dramatically, and partnership agreements are no different. With a range of services provided, from reviewing already existing agreements, guiding the negotiation process, to drafting agreements to meet specific needs, partnership agreement lawyers use different pricing schedules based on complexity of the services. Unfortunately, the cost of an involved process can take its toll on a new business, so for startups and smaller companies budget concerns will be significant.
In simple forms, consultation services outsourced to a law office cost between $100 and $300 an hour, but these costs can be higher for more complex matters or larger-sized firms that have bills commensurate with their size. Although the fees for client-attorney work are generally straightforward and charged by the hour, the cost of an attorney does depend a lot on matter and experience . Partnership formation and affairs, as well as dispute resolution, are the most common reason for to seeking a partnership agreement lawyer. Experienced attorneys across the country report the average cost of developing documents such as a general partnership agreement being between $250 and $3,000, while those for development of a limited partnership agreement can run upwards of $5,000 or more. These agreements can be fairly simple or easily become complex based on the terms of ownership, performance, and even contingency plans for the dissolution of the partnership. The costs of developing a partnership agreement also vary widely based on the legal formalities that govern limited partnerships in individual states. Depending on the answers to key questions that emerge from the initial conversation to frame the issues of the agreement or dispute, the costs of drafting and negotiation can skyrocket. In addition, the costs of anticipating what type of issues may arise during the life of the partnership agreement can be substantial.