5 Clauses Every Business Partnership Contract Needs
When you form a partnership, limited liability company (LLC), or any other business arrangement, your contract will have several key statements that directly outline the responsibilities and limitations of every member in the group.
In a way, your partnership contract will be the constitution for your company. It’s imperative that your contract includes five important clauses to protect yourself and ensure your future entity runs smoothly as you hire a Maryland contracts attorney and draw up the documents for your partnership.
Partner Duties
Foremost, ensure that your partnership contract includes at least one clause outlining all the major duties expected of each partner. These duties can include:
● What role they will play in the company or partnership
● What level of decision-making power they hold
● The level of authority each partner has
● What management duties or other responsibilities partners may be responsible for
A clause outlining partner duties will help ensure that each partner knows what’s expected of them and that there will not be disagreements about how job duties are assigned as the business begins operating.
Capital Contributions
Next, make sure you have a clause outlining the capital contributions expected of each partner. This is usually cash, but it can also involve assets, securities, property, or even technical skills. Often, the capital contributions affect the percentage of ownership each partner receives in the company – those that contribute more initially usually own more of the company after it is formed.
Liabilities and Acceptance
There are a variety of different business partnerships you may enter into, which can affect the liability of each partner (if any apply). For example, a limited liability company contract should include clauses explaining that company partners or managers are not liable for company debts, which protects individual assets and bank accounts.
However, other types of partnerships may not include these liability protections. Be sure to speak to your Maryland contracts attorney to ensure this part of the contract is airtight in the event of future legal trouble.
Assignments of Profits and Losses
Your partnership contract should also include the allocation and distributor of profits and losses. In a nutshell, this part of the contract will explain how much of the company profits will be allocated to each partner for tax purposes, as well as when partners will be able to “draw” cash or property from the company’s coffers. This part of the contract is important to ensure that each partner feels they’re getting their fair share from the company.
Dispute Resolutions
Last, include a clause explaining dispute resolution processes and standards. If things get heated between you and another partner, you’ll need a clause in your contract that explains how the disagreement should be resolved.
This can save your company from falling apart in the most extreme cases. For example, your contract might stipulate that arbitration or mediation be used first before one party sues the other.
There are, of course, many more clauses and key aspects of a partnership contract you should consider. Contact Maryland contracts attorney Steve Thienel today. Don’t form your partnership or business without an experienced attorney at your side.
