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A partnership agreement can prevent numerous disputes

On Behalf of | Jun 28, 2022 | business litigation

Disputes occur in business quite frequently. If you are starting a business with someone, you may be able to prevent many arguments and conflicts by having a partnership agreement.

A partnership agreement contains important information relating to the business operations, duties of each partner and how to deal with any potential dispute. It also defines the mission, vision and goals of the business, which helps the partners stay on track.

Clarifies each partner’s roles

According to the U.S. Chamber of Commerce, a partnership agreement outlines the contributions of each partner and clarifies the main roles that each will play in the business. This not only allows each partner to focus on their strengths but also reduces confusion as to who is responsible for which part of the business.

Outlines profit and loss distribution

Not every partnership is 50/50. A partnership contract states the percentage of ownership that each partner has, and it also details how to distribute profits and deal with losses. As money is a common reason for disputes, having it clearly laid out can prevent many issues.

Tackles company dissolution or partner exit

There may come a time when one or both partners want to get out of the business. If not discussed beforehand, this can be a messy situation. Having a clear strategy outlined in the agreement can make this a streamlined and efficient process.

Describes dispute resolution strategy

Even with a well-thought-out partnership agreement, disputes may still occur. You can deal with this by outlining how you will resolve disputes. The Cornell Law School Legal Information Institute discusses resolution strategies if you want to avoid litigation. Arbitration and mediation are common ones used to resolve business disputes. By including the preferred strategy in your partnership agreement, you can work on settling conflicts right away.