Business partnerships are an exciting venture to get into because you enjoy the input of the other partners without having to incorporate the business. However, even with this type of business, you need guidelines everyone must follow to ensure the business attains an excellent return on investment.
What better way to achieve this outcome than acquiring essential legal documents? These partnership documents enable the parties involved to enjoy the following benefits:
- Have clarity and understanding of each person's responsibilities
- Protects everyone's interest by outlining how profits and losses will be shared
- Enhances faster dispute resolution
- Ensures the business complies with the state's requirements
To assist you in establishing a business partnership that will reap these benefits, we will list eleven legal documents that are critical to have and explain why you need to have them. But first, let's explain partnerships as a business structure.
Partnerships as a Business Structure
A partnership is a legal business structure where two or more people share ownership of a company. These individuals combine their skills, efforts, and resources to operate a successful business. The overall governing method used in running partnerships depends on the type of business partnership. The following table differentiates the three types in terms of liability protection.
| Type of Business Partnership | Liability Protection |
|---|---|
| General partnership | Partners have unlimited personal liability—no liability protection. |
| Limited Partnership (LP) | Limited partners have limited liability protection, while general partners have unlimited personal liability. |
| Limited Liability Partnership (LLP) | Partners are exempt from personal liability to debt and obligations—which provides liability protection. |
Even though partnerships offer a simplified way of doing business, having partnership documents that define roles and responsibilities and how the business will operate ensures you maximize the resources and efforts used.
Key Legal Documents for Business Partnership
The following are key legal documents that will help you establish a superior business framework. Taking time to do the paperwork will ensure you run a successful and stable business.
Partnership Agreement: Defining the Partnership
A partnership agreement is a formal contract that explains the terms of a business relationship. It helps partners:
- Define everyone's rights and responsibilities
- Profit/loss distribution
- Decision-making authority
- Procedures for resolving disputes
This document aligns everyone's expectations and enables partners to avoid misunderstandings that can dissolve a partnership.
Start your Partnership Agreement now
Business Name Registration: Establishing Identity
Business name registration, or a DBA, allows you to legally register your business name and protect your rights to the name. Registering a business enables the partners to have a legal trading name, establish a brand identity, build credibility with customers, and avoid being confused with another business.
Memorandum of Understanding: Declaring Intentions
A memorandum of understanding is the initial document you sign establishing the partnership. The MOU assist partners to:
- Outline the purpose of the business
- Create the business structure
- Establish roles
- Give out responsibilities
An MOU provides a foundation for the partnership and enables the partners to work towards a common goal.
Start your Memorandum of Understanding now
EIN Application: Tax Identification
An Employer Identification Number (EIN) is a unique identification number you receive from the IRS. It is required for tax purposes under 26 CFR § 301.6031(a)-1 (Return of partnership income). You must have it to:
- Open a business bank account
- File taxes
- Hire employees
- Obtain business permits
The EIN establishes you as a valid legal business entity with the right to interact with the government and other third companies.
General Partnership Certificate: Formal Recognition
Every business partnership should register its business with the state, and a general partnership certificate achieves this purpose. You must file for a partnership certificate to access legal rights specific to partnerships. It also provides proof of validity to banks and other agencies.
Financial Agreement: Managing Finances
A crucial money-related document to have as you set up your business is a financial agreement. It helps you to outline:
- Capital contribution
- Profit and loss allocation
- Profit and loss distribution
- Accounting procedures
- Budgeting methods
Every business partnership needs this document to have similar financial expectations, provide transparency, and avoid disputes over money.
Intellectual Property Agreement: Protecting IP
An intellectual property agreement controls a business partnership's use and ownership of intellectual property (IP), such as trademarks, patents, trade secrets, and copyrights. This document helps to clarify IP rights by protecting proprietary assets and offers a clear process for licensing any IP you develop as partners.
Non-Disclosure Agreement (NDA): Safeguarding Confidentiality
If you do not want your partners to tell anyone about your trade secrets or give out sensitive data, then a Non-Disclosure Agreement is an important document to have. The NDA requires all partners to keep all information discussed about the business confidential. It helps your business safeguard the competitive advantage it has over other similar businesses.
Dissolution Agreement: Preparing for the End
Do you want to protect yourself when you have to part ways with your business partners? A dissolution agreement helps you to plan for it and ensure a fair outcome as you end the relationship. The agreement assists you in addressing issues such as:
- Asset distribution
- Final profit and loss allocation
- Settling of remaining debts
A dissolution agreement provides an orderly method to terminate the business partnership with little to no conflicts.
Buy-Sell Agreement: Handling Partner Changes
Sometimes, a partner may want to leave the business relationship due to personal reasons like retirement or as a result of an illness or accident that leads to disability or death. A Buy-Sell agreement allows such a partner to transfer or sell their interest to someone else to ensure the business continues uninterrupted.
Licenses and Permits: Operating Legally
Acquiring licenses (grants permission) and permits (imposes conditions your business must meet) authorizes you to operate your business legally. The licenses and permits are issued by the federal government, state institutions, and local agencies. These documents help you:
- Prove legitimacy
- Comply with regulations
- Safely provide services
- Avoid penalties
Any business entering into a partnership must take the time to register the business, have partnership agreements, obtain necessary permits and licenses, and address key challenges before they arise. Make sure your business is prepared with these documents.
Helpful Resources:
Table of Contents:
Table of Contents:
Business partnerships are an exciting venture to get into because you enjoy the input of the other partners without having to incorporate the business. However, even with this type of business, you need guidelines everyone must follow to ensure the business attains an excellent return on investment.
What better way to achieve this outcome than acquiring essential legal documents? These partnership documents enable the parties involved to enjoy the following benefits:
- Have clarity and understanding of each person's responsibilities
- Protects everyone's interest by outlining how profits and losses will be shared
- Enhances faster dispute resolution
- Ensures the business complies with the state's requirements
To assist you in establishing a business partnership that will reap these benefits, we will list eleven legal documents that are critical to have and explain why you need to have them. But first, let's explain partnerships as a business structure.
Partnerships as a Business Structure
A partnership is a legal business structure where two or more people share ownership of a company. These individuals combine their skills, efforts, and resources to operate a successful business. The overall governing method used in running partnerships depends on the type of business partnership. The following table differentiates the three types in terms of liability protection.
| Type of Business Partnership | Liability Protection |
|---|---|
| General partnership | Partners have unlimited personal liability—no liability protection. |
| Limited Partnership (LP) | Limited partners have limited liability protection, while general partners have unlimited personal liability. |
| Limited Liability Partnership (LLP) | Partners are exempt from personal liability to debt and obligations—which provides liability protection. |
Even though partnerships offer a simplified way of doing business, having partnership documents that define roles and responsibilities and how the business will operate ensures you maximize the resources and efforts used.
Key Legal Documents for Business Partnership
The following are key legal documents that will help you establish a superior business framework. Taking time to do the paperwork will ensure you run a successful and stable business.
Partnership Agreement: Defining the Partnership
A partnership agreement is a formal contract that explains the terms of a business relationship. It helps partners:
- Define everyone's rights and responsibilities
- Profit/loss distribution
- Decision-making authority
- Procedures for resolving disputes
This document aligns everyone's expectations and enables partners to avoid misunderstandings that can dissolve a partnership.
Start your Partnership Agreement now
Business Name Registration: Establishing Identity
Business name registration, or a DBA, allows you to legally register your business name and protect your rights to the name. Registering a business enables the partners to have a legal trading name, establish a brand identity, build credibility with customers, and avoid being confused with another business.
Memorandum of Understanding: Declaring Intentions
A memorandum of understanding is the initial document you sign establishing the partnership. The MOU assist partners to:
- Outline the purpose of the business
- Create the business structure
- Establish roles
- Give out responsibilities
An MOU provides a foundation for the partnership and enables the partners to work towards a common goal.
Start your Memorandum of Understanding now
EIN Application: Tax Identification
An Employer Identification Number (EIN) is a unique identification number you receive from the IRS. It is required for tax purposes under 26 CFR § 301.6031(a)-1 (Return of partnership income). You must have it to:
- Open a business bank account
- File taxes
- Hire employees
- Obtain business permits
The EIN establishes you as a valid legal business entity with the right to interact with the government and other third companies.
General Partnership Certificate: Formal Recognition
Every business partnership should register its business with the state, and a general partnership certificate achieves this purpose. You must file for a partnership certificate to access legal rights specific to partnerships. It also provides proof of validity to banks and other agencies.
Financial Agreement: Managing Finances
A crucial money-related document to have as you set up your business is a financial agreement. It helps you to outline:
- Capital contribution
- Profit and loss allocation
- Profit and loss distribution
- Accounting procedures
- Budgeting methods
Every business partnership needs this document to have similar financial expectations, provide transparency, and avoid disputes over money.
Intellectual Property Agreement: Protecting IP
An intellectual property agreement controls a business partnership's use and ownership of intellectual property (IP), such as trademarks, patents, trade secrets, and copyrights. This document helps to clarify IP rights by protecting proprietary assets and offers a clear process for licensing any IP you develop as partners.
Non-Disclosure Agreement (NDA): Safeguarding Confidentiality
If you do not want your partners to tell anyone about your trade secrets or give out sensitive data, then a Non-Disclosure Agreement is an important document to have. The NDA requires all partners to keep all information discussed about the business confidential. It helps your business safeguard the competitive advantage it has over other similar businesses.
Dissolution Agreement: Preparing for the End
Do you want to protect yourself when you have to part ways with your business partners? A dissolution agreement helps you to plan for it and ensure a fair outcome as you end the relationship. The agreement assists you in addressing issues such as:
- Asset distribution
- Final profit and loss allocation
- Settling of remaining debts
A dissolution agreement provides an orderly method to terminate the business partnership with little to no conflicts.
Buy-Sell Agreement: Handling Partner Changes
Sometimes, a partner may want to leave the business relationship due to personal reasons like retirement or as a result of an illness or accident that leads to disability or death. A Buy-Sell agreement allows such a partner to transfer or sell their interest to someone else to ensure the business continues uninterrupted.
Licenses and Permits: Operating Legally
Acquiring licenses (grants permission) and permits (imposes conditions your business must meet) authorizes you to operate your business legally. The licenses and permits are issued by the federal government, state institutions, and local agencies. These documents help you:
- Prove legitimacy
- Comply with regulations
- Safely provide services
- Avoid penalties
Any business entering into a partnership must take the time to register the business, have partnership agreements, obtain necessary permits and licenses, and address key challenges before they arise. Make sure your business is prepared with these documents.
Helpful Resources:
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