In most states, you can go into business with your best friend and seal the deal with a handshake. If you form your partnership that way, chances are that before long, you and your former best friend will be in a legal harangue about who was supposed to do what in establishing, operating and managing the business.
When there is no written partnership agreement in Georgia, partnership disputes will be resolved according to the Georgia Uniform Partnership Act (GUPA) found in Title 14 of the Georgia Code. This requires all partners, no matter how many there are, to act in “good faith and fair dealing.” It may also require all partners to be equal participants in the operation and management of the business. This may have results none of the partners intended.
A written partnership agreement delineates the duties and obligations of each partner. Some of the most important factors that should be considered include:
- The name of the partnership: Disagreements can begin with what to call the partnership. Imagine what a difference Wesson & Smith or Fitch & Abercrombie would make? At some point, those involved had to decide what the name would be.
- The type of business: This seems easy, but you need to agree on what your business is and what you are selling. For example, are you going to sell stationery, hardware or both?
- Partnership contributions: Are you going to be equal partners, or will one partner contribute more than the other ones?
- Allocation of profits and losses: It may seem logical that profits and losses are allocated according to the percentage of partnership contributions, but you need to all be in agreement about this.
- How the duties and responsibilities will be divided: Who is responsible for every aspect of managing the business needs to be put in writing. You want to avoid disputes over who was supposed to order the staples or return the calls of customers or clients.
- What happens to the business if one partner dies: If this is included in the written partnership agreement, it will avoid disputes with the decedent’s family in the unpleasant event that will ensue if one partner dies.
These are other issues that may be included, depending on the nature of the business. The time to determine how problems will be resolved is before they even arise.