You've been running your small business well, and now you need a partner for more capital and expertise. There is a partner you have already identified, but cannot proceed with the partnership because you are not sure whether the distribution of profits and losses will be done in a fair way or responsibilities towards the partnership will be shared properly.
In other words, you don't have a proper freelance partnership agreement and feel you will not gain from the partnership. There are various online resources where you can find a small business partnership agreement template, but you might still be unsure as there could be loopholes in it.
While the template could be modified, there are some basic tips you need to follow when it comes to drafting a freelancing small business partnership agreement.
We will share those tips with you so that it includes the important information that every partnership agreement needs to address.
1. Tips for a creating a small business partnership agreement
When drafting a small business partnership agreement template, here are some points that should be kept in mind:
1.1. Include a name of your partnership in the small business partnership agreement
As a freelancer, you must give your partnership a name that should be checked, whether it is available for use or not. Using an existing name for your small business partnership agreement template would lead to copyright violations. Once you get an available name, you should apply for a trademark so that no other business can use it.
1.2. Name the partners in the small business partnership agreement
The small business partnership agreement template should contain both - the name of your partner and your own. You should also include your qualifications and background, along with those of your partner.
1.3. Mention the nature of business in the small business partnership agreement
The kind of business you and your partner are engaging in should be included in the small business partnership agreement template. This will decide the laws you need to follow while drafting the consultant agreement.
1.4. Mention the type of partnership in the small business partnership agreement
There are different types of partnership agreements like a general partnership, limited partnership, or limited liability partnership. Your small business partnership agreement template needs to specify the type of partnership agreement you are entering.
1.5. Mention the duration of the small business partnership agreement
Every legally binding agreement has an effective date from which the agreement becomes valid, and after a certain period, the duration of the agreement, the agreement is terminated. The small business partnership agreement template should include the start date and the end date of the agreement. You should include a provision for an extension, in case both you and your partner want to extend the freelance agreement.
1.6. Mention capital contribution by partners in the small business partnership agreement
The amount of capital being contributed by you and your partner should be stated clearly in the small business partnership agreement template in figures and percentage. The percentage will decide the sharing of profits and losses between you and your partner.
1.7. include the bank account of the partnership in the small business partnership agreement
Your freelance partnership agreement would require you to mention the bank details for the partnership. All transactions related to the partnership should be met through this account. This is a legal requirement. This will also ensure that everything is transparent between you and your partner.
1.8. Responsibility of partners
The freelancing agreement should include the responsibilities of both partners so that there are no disputes.
2. How to create a small business partnership agreement PDF
Are you thinking of setting up a partnership business with a friend? If you are, that's a great idea. Firms with a partnership set up where two or more people own or run them have some obvious benefits. First, the company benefits from the knowledge pool, resources, and skills of the partners.
Secondly, the business shares both profit and losses, thus reducing the burden on each partner. However, it is recommended to have a partnership agreement in place for such a set up to avoid conflict, or better still have a common ground of settlement should they arise in the future.
A partnership set up is similar to a sole proprietorship, where each partner owns a portion of assets belonging to the organization and its liabilities. Since more than one person makes business decisions that affect the business, it is critical to address the aspects of running the business upfront.
You should have a small business partnership agreement PDF that defines business ownership and, consequently, the partners' responsibilities. Generally, the clearer and detailed the agreement, the fewer partners have to debate about or disagree upon when they don't see eye to eye.
2.1. Who needs a small business partnership agreement PDF
Two or more people intending to run a small profit-oriented business together need a partnership agreement. This includes friends, family members (spouses), and colleagues.
A small business partnership agreement PDF is a contract between the parties involved in a business, and it establishes responsibilities, profit, and loss distribution for each party. It may also include capital contribution information, withdrawal, and financial reporting.
2.2. What should be included in a small business partnership agreement?
Below are critical information that should be addressed in any small partnership agreement.
2.2.1. Name of the parties
The name of the partnership business is one of the most critical information an agreement must not miss. It may be chosen based on the names of the partners but must be unique to that business alone.
2.2.2. Contributions
Here is a crucial part of the small business partnership agreement PDF; it addresses the contribution made by each partner. You must decide beforehand the amount a party would contribute in cash, properties, or service to the business. Not only that, but the agreement may also specify the support, time, effort, and commitment required from each party. Besides, you may also define what contribution is expected of each partner in the future.
2.2.3. Distributions & ownership
You are all in business with the hope of making a profit. Right? So, your small business partnership agreement PDF should include a profit-sharing formula and percentage of ownership for each partner. You may also include non-partner employees' information who may contribute relevant skills to the business operation in exchange for compensation.
2.2.4. Tax responsibility
A partnership business set up should be concerned about tax remittance to the government. Filing and payment of tax become easy and stress-free when the agreement defines the partner responsible.
2.2.5. Management & partner’s authority
It may not be easy to spell out every detail regarding roles in a small business partnership agreement PDF. However, the document should dictate the person responsible for essential activities such as accounting information, bookkeeping, cooperating minutes, negotiating with customers, and employee supervision.
You and your partner(s) will not have the same view on every matter; hence, setting up a decision structure is important. What type of decision can be made by a single partner? And which requires a unanimous vote from partners?
2.2.6. Dispute resolution
No one enters a partnership with the hope of seeing things get ugly. But your small business partnership agreement PDF must state how to dispute will be handled if the relationship gets sour in the way.
2.2.7. Critical development
The unexpected sometimes happens in business; no one calls for it. That's part of things that makes business both unnerving and exciting. Your agreement should address the following possible partnership questions/scenario:
- A partner getting sick or dies
- A buyout- what's the evaluation model if there's an offer
- Provision for retirement
- Conditions for modification of the agreement
- Dissolution & withdrawal by a party
- Admittance of new partners
Get the right small business partnership agreement template
When you enter into a freelance partnership agreement, you need to keep in mind the laws of the state, the profit-sharing between the partners, the duration of the agreement, and the type of partnership. You should understand everything there is to know about business partnerships.
Get the right template from Bonsai and watch your partnership business grow!
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