Drafting a Partnership Agreement
Drafting a Partnership Agreement
If you decide to organize your business as a partnership, be sure you draft a partnership agreement that details how business decisions are made, how disputes are resolved, and how to handle a buyout. You’ll be glad you have this agreement if for some reason you run into difficulties with one of the partners or if someone wants out of the arrangement.
The agreement should address the purpose of the business and the authority and responsibility of each partner. It’s a good idea to consult an attorney experienced with small business for help in drafting the agreement. Here are some other issues you’ll want the agreement to address.
How will the ownership interest be shared? It’s not necessary, for example, for two owners to equally share ownership and authority. However you decide to do it, make sure the proportion is stated clearly in the agreement.
How will decisions be made? It’s a good idea to establish voting rights in case a major disagreement arises. When just two partners own the business 50-50, there’s the possibility of a deadlock. To avoid a deadlock, some businesses provide in advance for a third partner, a trusted associate who may own only 1 percent of the business but whose vote can break a tie.
When one partner withdraws, how will the purchase price be determined? One possibility is to agree on a neutral third party, such as your banker or accountant, to find an appraiser to determine the price of the partnership interest.
If a partner withdraws from the partnership, when will the money be paid? Depending on the partnership agreement, you can agree that the money be paid over three, five or 10 years, with interest. You don’t want to be hit with a cash flow crisis if the entire price has to be paid on the spot in one lump sum.
We hope you found this article about “Drafting a Partnership Agreement” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe to our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Which Projects Are Worth My Time?
People are so busy these days. It seems like life never slows down and the number of things with which we can occupy our time is endless. We all have so many things to do and just about all of those things seem important and necessary. We have work and family duties, as well as…
Is a Personal Tax Inversion Right for You?
Is a Personal Tax Inversion Right for You? It seems like no matter the time of year, taxes are always a hot-button issue. Lately, it appears that the topic getting the most attention in Washington, as well as in the media is tax inversions. Tax inversions continue to make a lot of noise and they…
Making the Right Decisions
Making the Right Decisions Life is full of decisions. Not all of these decisions carry the same level of importance, but nevertheless, we are faced with decisions at just about every turn. In business, just like in life, people have to make choices every day. Some of these decisions are simple and don’t have earth-shattering…
Make These Smart Moves Now for the 2015 Tax Year
Make These Smart Moves Now for the 2015 Tax Year We all know that 2014 is just about over, which means soon we’ll be watching that big crystal ball drop in Times Square and kicking of another new year. A new year means new goals and resolutions, which can cover just about every aspect of…