Why should you make your partnership formal?

On Behalf of | Mar 10, 2023 | Business Law |

A business partnership can expand your opportunities for growth and success. Turning it into something sustainable requires careful planning and consistent effort.

A formal legal agreement will reduce your risks substantially and allow you to clarify expectations early on. You will want to periodically review your contract and update it as needed to preserve its function.

Identify each other’s expectations

A well-written business contract will mutually benefit everyone involved. Not having a formal agreement where you can discuss expectations could increase the risks of discord.

There are several aspects you will want to address when identifying individual expectations. According to Business News Daily, a partnership agreement should include a discussion of the following:

  • Property ownership
  • Individual responsibilities
  • Ownership interests
  • Capital contributions
  • Decision-making authorities

Present strategies for dissolution

Another reason for a formal partnership agreement is so you can discuss strategies for dissolution. You can clarify which options there are to follow if the partnership needs to end. Discussions about details including property distribution and the split of joint investments could prevent a lot of confusion and tension.

A partnership agreement provides you and everyone else involved in the arrangement with a point of reference. Clarification on roles, outputs and financial contributions can remain in one place, accessible to every party who has a signature on the document. If at any point you need to modify the agreement, you will first want to discuss your intentions with the other parties involved. Your diligence in creating and maintaining a thorough agreement can facilitate a long-standing and advantageous relationship.