When forming a business, you may want to go the partnership route, pooling resources and expertise with others for mutual success. However, in this collaborative endeavor, a partnership agreement may be needed to outline crucial details and expectations for all parties involved.
In Texas, a partnership agreement is an important document that should contain the following clauses.
1. Profit and loss distribution
The partnership agreement should clearly delineate how profits and losses will be allocated among the partners. This may include specifying whether distributions will be made based on each partner’s ownership percentage, capital contributions or a combination of factors agreed upon by the partners. The agreement should also outline the frequency and method of distributing profits such as through periodic distributions or reinvestment into the business.
2. Dispute resolution
The agreement should also outline how disputes among partners will be resolved to maintain the smooth operation of the partnership. This may involve specifying a step-by-step process for addressing disagreements, such as initial attempts at informal negotiation, followed by mediation or arbitration if necessary.
3. Partner responsibilities
The duties and responsibilities of each partner should be clearly defined within the partnership agreement. This includes outlining the specific roles that each partner will undertake in the business, such as management responsibilities, operational tasks and decision-making authority.
4. Capital contributions
The partnership agreement should also detail the initial contributions made by each partner to establish the business. This may include specifying the amount of capital contributed by each partner in the form of cash, property or other assets, as well as any agreed-upon schedule for additional contributions if needed.
5. Liabilities acceptance
Every business venture carries inherent risks and partners should be aware of the potential liabilities they may face. The partnership agreement should include clauses that outline how liabilities will be handled within the partnership. This may involve specifying the extent to which partners are personally liable for the debts and obligations of the business, as well as any limitations on liability or provisions for indemnification.
Legal counsel can help ensure the partnership agreement is thorough, legally compliant and tailored to the partners’ needs, minimizing future disputes and protecting all parties involved.