If you are ready to start your new business venture in California, you might be thinking about forming a partnership. Before you do, consider your partnership agreement carefully. You want a partnership agreement that is comprehensive, clear and enforceable.
There are some key elements you should cover in your agreement.
Define the intention of the partnership
Start with a clear explanation of the purpose of your partnership, including what you plan to accomplish together as well as what is or is not permissible for each partner to pursue on their own time. For example, do you want to prohibit each partner from pursuing work with a competitor or forming a competitive business while the partnership is valid?
Detail each partner’s capital contributions
The partnership agreement should list the capital contributions made by each partner along with the details of the vested interest each partner holds in the business as a result. This should be as detailed as possible to eliminate confusion or contest.
Establish roles and responsibilities
Establishing the expectations of each partner, including their roles within the business and the amount of time they should contribute, helps to set everyone up for success.
Avenues for entry and exit of partners
Every partnership contract should also list the potential avenues for adding a partner as well as an exit strategy for each existing partner should they choose to leave.
Partnerships are contractually binding legal entities. Consider the details of your partnership contract and build a document you both can agree on.