Partners need a written partnership agreement

If you are operating your business as a partnership, you should have a written partnership agreement. This is true for family partnerships as well.

The need for a partnership agreement can be summed up in two words: things change. You and your partner/s may agree about everything now, but disputes could arise later. Or one of you could die unexpectedly, leaving the survivor/s to deal with the deceased partner’s heirs.

The basic provisions of a partnership agreement should include the parties to the agreement, the company name, purpose, location of the business, and the division of management responsibilities. The agreement should also indicate the following:

* Initial capital contributions (or services in lieu of capital).

* How and when additional capital contributions may be required.

* How profits and losses will be shared.

* How much of the profit is to be distributed and how much is to be left in the company for growth.

Beyond the basics, the agreement should anticipate major events and spell out how to deal with them. For example, if one partner dies, what are the rights and obligations of the other partner/s? Under what circumstances can a partner leave, retire, or be expelled? What are the financial arrangements for departing partners? How long must an ex-partner wait before starting a competing business?

A partnership agreement can’t address every possible contingency, so consider an arbitration clause to handle disputes that you and your partner/s can’t resolve on your own. Without such a clause, you may face a very expensive lawsuit to settle disputes.

You and your business will benefit from a properly written partnership agreement. See your accountant and your attorney for assistance in getting it done right.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today's small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it. Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission. Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations. She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.
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