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Why It Is Important to Draft a Partnership Agreement Correctly

Why It Is Important to Draft a Partnership Agreement Correctly

There are many steps to consider when forming a partnership in Georgia, including choosing an available business name and registering it, opening a business bank account, and determining what tax and regulatory obligations the partnership will have.

One of the most important steps in this process is creating a partnership agreement. Accordingly, it is crucial to draft a partnership agreement correctly. Forbes recently published a list of five essentials for partnership agreements:

  1. Decision-making. Determine who will make certain decisions and how. Have a plan for when there is no consensus on an important issue.
  2. Capital Contribution. It is important to delineate each person’s monetary contribution to starting the business. Also prepare for the worst-case scenario by discussing what will happen if the business has no money and needs more to continue.
  3. Salaries/Distributions. Decide when a partner may take money out of the business. Here, establishing the long-term goals of the partnership is crucial. It is possible that one partner wants to build a national brand, and therefore, save money by making fewer distributions, while the other prefers to keep the business small. Establish how partners are re-paid for their initial investment.
  4. Death/Disability. Prepare for the worst. If something happens to one of the partners, insurance, trusts, and wills become very important. Determine things like who you would like to make decisions on your behalf and who would inherit your shares of the company.
  5. Dissolution. Just as many couples hesitate to think about divorce in order to create a prenuptial agreement, many soon-to-be business partners do not want to discuss the possibility of dissolution.  However, it is extremely important to do this at the beginning of a business relationship. Determine what will happen if a partner wants to leave. The best time to figure out your exit strategies is before you find yourselves at an impasse.

If you are preparing a partnership agreement in Georgia, it is best to consult a knowledgeable business attorney for legal guidance.

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