How to Write a Contract for a Business With Partners

Creating a contract for business partners ensures all parties are protected.

Starting a business is a complicated task as you must not only meet all state and local regulations but also order inventory and market this new venture. Because of this, many new business owners operate with a partner; however, to protect not only your investment but also your partner's, a business partner contract must be created. When outlining a business partner contract, several terms must be included.

Instructions

1. Write an official job description for each partner. Within the description, outline the specific job duties and responsibilities, as well as any provisions for each position, such as vacation days, medical leaves, sick days, etc. Outline the chain of command within the job description, for example, "Partner #1 is responsible for scheduling clients and must report to Partner #2 at the end of each business day to confirm the next day appointments." Have each partner sign his job description, and include this as an attachment with the contract.

2. Establish the initial capital each partner will contribute to the business, and write this information down. Within the contract state the capital from each partner will be held in an individual bank account, which the partner will have control over. Once the dollar amounts are squared away, outline how much of the business each partner will own based on the amount of capital she invested. Describe the share of the business in detail within the contract, specifically stating how each share was created.

3. Create an income section within the contract, which states the amount of money each partner will make based on sales. State the income of the business will be held in a separate account, and divided among the partners in a fashion agreed upon by all parties. Describe how the salary or income amount will be determined.

4. Describe the management of the business and the job functions each partner is expected to perform. Use the job descriptions created earlier to outline this section of the contract. Within this section, outline the number of mandatory meetings all partners must be attend, and set specific dates for these meetings as well as what each meeting will cover.

5. Develop a process for handling disputes between partners, and how the each dispute will be settled. Decide whether the dispute be handled between the partners by holding a vote or written out and handed to an arbitrator who will then make a final decision. Outline the process from beginning to end, and create penalties if a partner does not follow this protocol when handling a dispute.

6. Create a section outlining the process if a partner decides to leave the partnership. Determine if one partner may "buy out" the other partner, and the process for doing so. Also, determine if all partners in the business may mutually agree to remove one or more partners from the business due to unprofessional behavior, fraud or any other undesirable actions. Write out the process for such removal in detail.

7. Take the first draft of the contract contents to a business attorney, and have the attorney outline the final contract. This ensures all bases are covered within the contract, and every partner is treated equally under the contract.

Tips & Warnings

• Hold a brainstorm meeting with all partners when outlining the first draft of the contract to ensure all parties are aware of the contract terms.

• Do not alter a contract once it has been signed.

References

• Business Knowledge Source: How to Write a Legal Partnership Contract for a Small Business
• Biz Move: Forming a Business Partnership Contract
• Bplans; Creating a Business Partnership Agreement; NOLO

Resources

• Printable Contracts: Partnership Agreement