According to the law, a business partnership can be initiated with just an oral agreement. However it is always better to go for a written document. Just like a marriage the small differences within the partners only arise when the time goes on. These differences first create minor disagreements. Later it will develop to heated arguments leading to potential conflicts among partners. Although these conflicts may not be healthy for the partnership, the partners must understand that these are unavoidable as well. So they are no way in a position to prevent these from surfacing. However they can have a written document stipulating clear guidelines which could be used to resolve these conflicts. This is where a written partnership agreement becomes handy since it eases the burden as everything is planned and agreed upon, well in advance.
The partnership agreement gives you the framework on which the business was built. Apart from the basic details of the business such as name, purpose, partners and duration, it also includes clear instructions on each partner's obligations, settling the disagreements and resolving conflicts. As we discussed earlier these conflicts naturally occur in every business relationship. So, acting as a problem solver the partnership agreement ultimately helps to ensure the long term well being of your business.
Often it is the grudge between partners over aspects such as money, controlling power, personal charisma and culture which harm the well being of a business partnership. Therefore you need to specifically concentrate on these aspects when developing your agreement. You may need to create your written partnership agreement with the assumption that anything that can go wrong in your partnership. So you need to prepare solutions for all the possible detrimental events that you can think of.
Preparing solutions is not a task of only one partner. Each partner gets involved in the discussion and ultimately everyone agrees to a particular solution. This acts like a rehearsal session to an actual conflict where everyone gives their diverse opinions. As a result the preparation of the written agreement can lead the partners to have a clue on the diverse views possessed by each of them and identify at least some of the potential conflicts. If the partners realize that their views are so diverse that it is hard for them to arrive at an agreement they can always go apart. This is 10000 times better than starting the business and finding out that they do not match.
Broadly it is the Uniform Partnership Act (UPA) which governs the business partnerships in the US. So if your partnership does not have an agreement it will be governed by this. Even if you prepared a written agreement it should be in accordance with the UPA. However the UPA allows a certain degree of flexibility in this case to alter the agreement to suit your business as the general law does not take in to account the unique circumstances. For instance if the formal agreement does not stipulate otherwise, the law may assume that each partner has an equal share of the business, and tax liability would be determined accordingly. Similarly in case of death of one partner or one partner leaving the business, the partnership would have to be dissolved.
As we already discussed, a written business document can be beneficial to a partnership business in many ways as it eases especially the burden of resolving conflicts. Therefore, though it may consume time and costs you money, it is always better to have the agreement in writing. So as I conclude my advice for you all is “Avoid problems - sign a partnership agreement!”
|
