This will  cover all possible business situations the partners may encounter and outline procedures to resolve conflicts. Some of the items our partnership agreement should cover include:

– The purpose of the partnership. Articulate the reason the partnership is being formed and describe the scope of the business.

– Capital contribution of partners. Who is putting in what in terms of cash and assets?

– Profit and loss sharing of partners. How will profits and losses be distributed?

– Voting rights of partners. Not all partnerships are necessarily equal. You may calculate voting rights based on the value of each person’s financial or management contribution.

– Delegation of management authority to partners. Determine who has authority to do what on their own, and when other partners must be involved before a decision can be made.

– Designation of a tax matters partner. Name one individual who is responsible for dealing with the Internal Revenue Service in the event of an audit.

– Disposition of a partner’s interest upon the death of that person. If not otherwise stated in the partnership agreement, a general partnership will automatically dissolve on the death of a partner. Plan ahead for a smooth transition and to protect the business and survivors.

– Methods to resolve tie votes between partners on crucial partnership decisions. How will you break a deadlock?

– Admission of new partners. As your business grows and changes, you may want to expand the ownership of the company. Know in advance how this will be done.

– Bank account signature authority. Who can sign and how many signatures will be required on bank accounts.

– Exit options. If one of you wants out of the partnership for any reason, how will it be handled? The typical method is a buy-sell agreement, and the details should be established long before it ever becomes an issue.

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