Partnership is a type of business structure that has two or more owners and has not been registered as either a limited liability company or a corporation. It may be considered as the cheapest and simplest business entity that can be established and operated by two or more co-owners.
How are partnerships formed?
Partnerships are automatically formed when two or more persons engage in a business enterprise intended for profit. It can be formed with just a simple handshake.
Partnership is the only business structure that can be formed by oral agreement. However, a lot of oral agreements lead to misunderstanding between the parties, which often lead to partnership disputes.
Relationships sometimes experience arguments, even relationships between business partners. More often than not, these arguments lead to disputes.
Partnership disputes may arise in relation to the following:
Matters that involve money including contribution, capital accounts, share of payments
Classification of personal assets and partnership
Discrepancy among partners
Liability of partners
Assets and property distribution
Sharing of profits
Responsibilities of each partner
How to Prevent Partnership Disputes?
Since most misunderstandings and arguments lead to disputes, one way of avoiding these conflicts is through a written agreement known as partnership agreement.
Although a written partnership argument is not required when forming a partnership, it is advisable to have one to settle conflicts and minor misunderstandings immediately when they arise before erupting into a full-blown dispute.
There are different laws governing partnerships depending on the state. It is usually called “The Uniform Partnership Act” (UPA) or “The Revised Uniform Partnership Act” (Revised UPA).
These laws establish the basic legal rules to be applied to partnerships including the rules unless different rules are set out in a written partnership agreement.
Since state laws are broad and are intended to be applied to general situations, it is better to have a partnership agreement wherein partners structure your agreement and state the rules that will suit your business.
The following is a list of the major topics that most partnership agreements cover:
Introducing the partnership
This consists of the basic information of the partnership that may include the following:
The name of the partnership
The address of the business site
The information regarding the partners
Length of partnership
Brief description of the business
Purpose of the business
Contributions to the partnership
The agreement should state who is going to contribute the needed resources and the percentage of ownership each partner will have.
Shares of profits, draws, and losses
The authority of partners
Partners should consider how to make decisions and the agreement should state what comprises a minor or major decision.
Management duties of each partner
Allowing new partners
Withdrawal or death of a partner
Resolving Partnership Disputes
There are cases where disputes are resolved through court procedures or through litigation but there are some other ways to resolve disputes among partners. One is through the alternative dispute resolution (ADR) wherein disputes can be resolved through negotiations rather than through the complex process of litigation.
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