Many small businesses in Ohio operate as partnerships with varying degrees of formality. In fact, if you operate a business with another person and do not formally establish it as a corporation or a limited liability partnership, the law may by default treat your company as a general partnership.
The law does not obligate you to write up a partnership agreement in order to run your business. However, a well-written agreement can help your business operate smoother and avoid many types of common disputes that tend to come up among partners.
What happens if you do not have an agreement
In the absence of an agreement, courts generally apply certain “default settings.” These provisions dictate that, in a general partnership, all partners are equal owners. This means each partner has authority to act on behalf of the partnership, but also that each partner bears personal liability for the business’s liabilities. Thus, the company’s creditors may be able to reach your personal assets to cover its debts, even though you may not have even known the debt existed. The default law also does not help you if you disagree with other partners about a course of action.
What should you include
When you enter into a partnership agreement, you and your partners can decide on its terms. Important issues to consider include each partner’s responsibilities and authority, division of profits and losses, decision-making procedures, partner changeover and what happens if the need arises to dissolve the partnership. Once you have an agreement that covers how all of this works, you will avoid having to hash everything out in the midst of the situation.
Why agreement templates do not work well
You can also include any other terms you deem important for your business. Because a partnership agreement presents a great way to set ground rules and effective decision-making mechanisms, you should avoid using ready-made templates. While you can easily find plenty of free templates, an agreement loses a lot of effectiveness if not tailored to your specific business needs. An experienced business attorney can advise you as to the best type of business structure and draft an agreement based on your concerns and business goals.