When entering into a business partnership, it`s essential to have a clear and comprehensive written agreement outlining the details of the partnership. However, navigating the terminology involved in partnership agreements can be challenging, particularly if you are not familiar with legal jargon.
In this article, we will cover the essential terminology you need to know when creating a partnership agreement:
1. Partnership: A partnership is a business relationship where two or more people share ownership of a company.
2. General Partnership (GP): A general partnership is the most common type of partnership where all partners have equal control over the management of the business, share profits and losses, and are liable for any debts.
3. Limited Partnership (LP): A limited partnership is where one partner has unlimited liability for the business`s debts and obligations, and other partners have limited liability and no control over the company`s management.
4. Partner Capital: Partner capital refers to the initial investment made by each partner in the partnership.
5. Profit and Loss Distribution: This clause outlines how profits and losses are shared among partners. Partners` shares can be equal or based on the percentage of their ownership.
6. Management Rights: This section outlines who makes business decisions and how decisions are made within the partnership. Decisions may be made by a majority vote, consensus, or other methods outlined in the agreement.
7. Partnership Termination: This clause outlines the circumstances under which the partnership agreement can be terminated, and how it should be dissolved.
8. Non-compete Clause: This section outlines restrictions on partners` ability to compete with the partnership or solicit clients or customers after leaving the company.
9. Confidentiality and Non-disclosure: This clause outlines parties` obligation to keep any information related to the partnership confidential.
10. Arbitration and Dispute Resolution: This clause outlines how disputes should be resolved, either through arbitration or litigation.
Creating a partnership agreement can be daunting, but understanding the key terminology involved is crucial. By being familiar with these terms, you will be better equipped to negotiate your agreement and ensure that all parties involved have a clear understanding of their rights and responsibilities.