Describe Importance Of A Partnership Agreement

The reality is that despite dreams of longevity and unwavering confidence, entrepreneurs` desires and expectations change over time. A written partnership agreement can meet these expectations and give each partner confidence in the future of the company. A written agreement can serve as a protection that protects both the business and each partner`s investment. A partnership agreement should contain appropriate restrictions on the sale and disposal of shares in an undertaking in order to control who owns the undertaking. In the absence of a written agreement defining how the interests are sold, an owner may sell his interests to others, including a competitor. If the parties do not discuss what happens after the death or obstruction of a homeowner, the remaining owners could end up in business with the spouse or other family members of a disabled or deceased partner. A written partnership agreement should contain provisions protecting minority partners. Such a clause, the «Tag along» provision, protects minority owners in the event of a takeover by third parties. If a majority shareholder sells its shares to a third party, the minority partner has the right to be part of the transaction and to sell its shares on similar terms. The advantage for the minority owner is that he can avoid being in business with an unwanted new co-owner. This provision also ensures that all partners receive similar takeover offers and protects minority owners from having to accept much less attractive offers. Also remember that the partnership contract is intended to protect all parties involved and to protect the company as a separate entity, that is, if one of your colleagues is reluctant to enter into a formal agreement of this type, you should ask some very serious questions about why this is the case. An agreement should contain provisions on what happens in the event of the death, obstruction or private bankruptcy of an owner.

Each of these events could have a negative impact on the business. In the absence of a written agreement to address these situations, the owners could be forced to dissolve the company, jeopardizing the investments of all partners. Provisions dealing with these scenarios can add predictability and stability when they are most needed….