Terms to Include in a Business Partnership Agreement

When you start up a new business in Florida, determining the right business structure for your company is essential. You should have the advice and insights of a central Florida business attorney before you make any final decision about your business structure.

If you are considering a partnership, keep reading. Partnerships may be simple or complicated. It depends on the nature of the business and how many partners are involved. A precisely drafted partnership agreement can reduce any potential for misunderstandings or conflicts.

What Are the Advantages and Disadvantages of Partnerships?

Partnerships are relatively inexpensive and easy to form, but partnerships also entail unique liability and tax issues.

One benefit of partnerships is the shared responsibility for management and decision-making, but one disadvantage is that unresolved conflicts may put the business at risk.

Another disadvantage is that one partner’s financial or legal mistakes may also put the business at risk, but a well-drafted partnership agreement puts solutions in place ahead of time – before unresolved conflicts or one partner’s mistakes damage the business or cause legal difficulties.

What is the Difference Between General and Limited Partnerships?

A partnership may be established when two or more persons do business together. Florida law allows for both “general” and “limited” partnerships.

Limited partnerships have at least one general partner who manages the business and assumes liability for its debts, and at least one “limited” partner who invests in the business but is not involved in management and isn’t liable for the debts of the business.

While no special filing or registration requirements are needed to create a partnership in Florida, partnerships must comply with the same registration, filing, and tax requirements that apply to every business in the state.

What Steps are Required to Start a Partnership?

Partners must take these steps to ensure that they are adhering to sound business practices when they form their new partnership:

• Decide on the name of the business.
• File a trade name.
• Obtain the necessary permits, licenses, and (if necessary) zoning clearance.
• Obtain an Employer Identification Number from the Internal Revenue Service.
• Draft and sign a precisely drafted partnership agreement.

What Should be Included in a Partnership Agreement?

A partnership agreement lists the responsibilities of each partner and determines how the business will be operated. Each partnership agreement is unique, but every partnership agreement should provide the answers to these questions:

•  What percentage of the business will be owned by each partner?
•  How will profits and losses be divided?
•  How will decisions be made and disputes resolved?
•  What authority, duties, and roles will each partner have?
•  How will the death or departure of a partner be handled?

What Percentage of the Business Will be Owned by Each Partner?

A partnership agreement provides details regarding what each partner will invest in the business. A partner may invest cash for startup expenses or may pledge to contribute property, services, or equipment that must be listed in the partnership agreement.

These investments or contributions usually determine the ownership percentage that each partner has in the company, and those percentages should be listed in the partnership agreement.

How Will Profits and Losses be Divided?

Partners may decide to share profits and losses based on their percentage of the ownership, or profits and losses may be equally shared.

To avoid future conflicts, these terms should be clearly set forth in a partnership agreement which should also determine when profits may be taken from the company.

How Long Will the Partnership Endure?

Partnerships are commonly presumed to continue for an unspecified length of time, although some businesses are meant to dissolve when a specific goal is reached or a specific period of time has passed.

A partnership agreement must be as specific as possible regarding the length of time the partnership is intended to endure.

How Will Decisions be Made and Disputes Resolved?

Given enough time, conflicts among partners and disputes over decision-making will almost inevitably emerge. A partnership agreement should spell out a decision-making procedure and should also provide instructions for resolving conflicts among the partners.

Conflict resolution is often achieved by the inclusion of a mediation clause that provides a method for settling disagreements without taking legal action.

What Authority, Roles, and Duties Will Each Partner Have?

Partner authority or “binding power” must be defined in a partnership agreement. Binding a business to debts or to other contractual obligations may expose the business to unacceptable risk.

Such a situation may be avoided by determining in a partnership agreement which partners have binding authority and how that authority is to be exercised.

How Will the Death or Departure of a Partner be Handled?

Rules for the death or departure of partners must also be included in a partnership agreement. The agreement may include a buy-and-sell procedure and may spell out the valuation process for a partner’s percentage of the ownership.

Alternately, the partnership agreement may compel the partners to carry life insurance policies that designate the remaining partners as beneficiaries.

What Will a Business Attorney Do on Your Behalf?

When you create a partnership agreement, don’t try to do it yourself. What appears at first to be straightforward and simple may quickly become complicated and costly. That’s one reason why the advice and services of the right business attorney are so essential.

Forming any new business often requires the owner or owners to make complicated plans and tough decisions. It’s inevitable that you’ll encounter unanticipated dilemmas and obstacles.

A central Florida business attorney can protect your partnership and its future by drafting – or by helping you and your partner or partners to draft – an easy-to-understand partnership agreement that satisfies the needs of your business and cannot be misinterpreted or misunderstood.

Your business attorney can assess your specific business needs, goals, and resources. Your attorney will take into account liability, risk, and tax consequences.

A Good Business Lawyer is the “Partner” You Need

When you start up a new business, the federal and state governments, most Florida counties, and many municipalities require you to file and submit legal forms and paperwork for a number of reasons. Each jurisdiction and every kind of business has its own unique regulations.

A business attorney can ensure that all of your required paperwork is complete, accurate, and meets any legal deadlines.

After you begin doing business, you may require legal advice or representation regarding employment law, a government investigation, a personal injury or premises liability claim, or even a lawsuit that you may need to file against another party.

Let your business attorney handle all of these matters for you. In fact, if you are starting up a new business, put the right business attorney on your team as quickly as possible. A business attorney is the essential “partner” that every business requires for success.

By: Melody Lankford
After graduating from Davidson College, Melody Lankford earned her J.D. from Florida State University’s College of Law in 2004 and was admitted to the Florida Bar that same year. Ms. Lankford joined Raydon Corporation as in-house counsel in 2004. She worked there until 2012, when she founded the Lankford Law Firm. She is an experienced Daytona Beach small business attorney who offers sound legal counsel and experience-based insights to her business clients.