A business partnership agreement, otherwise known as the articles of association or an operating agreement, is a legally enforceable legal document that sets out the roles and rights between two people or entities acting as business owners. These types of legal documents are used for many different purposes including business deal negotiation, business merger and acquisition, and business succession. Every year, there are millions of business owners who are involved in setting up new businesses or selling their existing ones and many of these people have either tried or are currently undertaking business deal negotiation to further their business interests. The process of business deal negotiation can be complex, time-consuming, and expensive. Thus, it is very important for business owners to ensure that they get every aspect of the transaction covered and that they have completely taken into consideration all of their options before making business deal negotiations with prospective business partners, including their possible financing options.
There are several legal documents that one must consider when making business deal negotiations. These documents include: an Operating Agreement, a Business Plan, and a Business Liability Agreement. Each of these legal documents are designed to govern the relationship between the business owner and the business partner during the course of the business. These documents also cover business merge and acquisition, business succession, and termination. One can browse lawyers who can help you prepare these documents online. However, before one can seek the services of these lawyers, it is important to understand the basics of how these legal documents are prepared and what they are looking for.
Operating Agreement: An operating agreement is legally binding, so it is essential that this document is correctly prepared. This document should describe the ownership responsibilities of each party, the partnership’s financial obligations, and other important terms and conditions. In general, it details the responsibilities of each business partner, such as providing the business with cash, property, and stock. Business owners can hire lawyers who can help them draft their Operating Agreement.
Business Plan: A business partnership agreement cannot be used as the sole document for business transactions. Rather, it is used as a supplement to the Operating Agreement. As a supplement to the Operating Agreement, business partners’ business plans are legally binding. Therefore, drafting business plans is essential.
Business Liability Agreement: This section of a business partnership agreement discusses liability, management, and investment. It requires that business owners create a disclaimer of liability; appoint a general partner, a limited partner, or a corporation; identify the responsible parties; define the duties of each partner; determine the remedies for each partner member; detail management information; and specify the manner in which an action by a partner member against a partner will be handled. Upon establishment of a liability protection, each partner is liable for the debts of all other partners unless the parties waive their rights to payment. The responsibilities of each partner are further determined under the Business Liability paragraph of the operating agreement. Similarly, the Business Partnership Agreement must include a paragraph regarding the election of officers and the determination of control.
Payment Agreements & Operating Agreement: A business partnership agreement must contain provisions addressing payment and/or capitalization. In case one partner leaves the business, the exit clause should be included in the Operating Agreement. Likewise, if the partners need to separately distribute assets, the contractual agreements must specify the method of distribution. If the partners need to engage in financing, the Operating Agreement should address the issue.
Franchise Disclosure: Theft and misrepresentation are very serious subjects, and must be included in all business partnership agreements. Theft occurs when one partner uses their influence to secretly take possession of a business idea before it is ready to launch into the public domain. Unfair competition is also a common issue, especially if one partner has acquired a popular business before others have been able to do so. Similarly, misrepresentation occurs when a business partnership agreement is used to conceal the relationship between the business and its founders.
Each partner has unique legal rights and duties under the business partnership agreement. Therefore, you should consult with a qualified attorney prior to executing the document. This type of legal document is a long and complex document that not only sets out the legal responsibilities of each partner, but also requires knowledge of local laws. You may wish to enlist the services of a local attorney to prepare the documents, so your partners can focus on their respective businesses. You may decide to create a template for the business partnership agreement to simplify matters. Whatever decision you make, understand that your business needs will dictate what type of documents you need to create and that each partner must sign.