Starting a business partnership involves having a clear outline of your and your partner’s job descriptions, rights, and obligations. It helps you manage conflicts and minor misunderstandings easily. Without one, these small disagreements can lead to full-blown business disputes.
One easy way you and your partner can create this outline is by writing a business partnership agreement for your LLC. If you want to create a comprehensive guideline for your business but need some guidance starting one, we’re here to help.
This blog will discuss how to make a business partnership agreement and why they’re vital to LLCs.
What Business Partnership Agreements Are
A business partnership agreement is a legal document binding two or more business associates. It establishes clear expectations for each partner and outlines rules for how they will manage the venture. These agreements typically include the following information:
Individual responsibilities and rights
Most business partnership agreements also include a set of rules if one of the partners decides to leave the company or sell their share of interest.
Some may think there are better ways to start a business than anticipating legal disputes. But if you want your venture to be successful, you must prepare for any disagreements you could have with your partner. A written legal agreement will help you navigate conflicts better than just having a verbal agreement.
Why Nevada is The Best State For Forming Partnerships
If you decide to form a limited partnership agreement with one of your colleagues, we suggest you do it in Nevada. Not only are partnerships taxed straightforwardly in Nevada, but the state’s business entity conversion is easier compared to other states.
Suppose you and your partners start a partnership in Nevada and eventually convert it into an LLC after a few years. In that case, Nevada’s statutory conversion will help you turn your limited partnership into a new entity in no time.
This kind of business entity conversion in Nevada is a streamlined process. All you need to do is write a conversion plan and have it approved by your partner. Once done, you can file your articles of conversion to NV’s Secretary of State.
You and your partner must discuss the future goals of the company before incorporating it in any state. Doing so will help you avoid complicated and expensive conversion processes once your business grows.
Stages of A Business Partnership Agreement
Before you can start writing your business partnership agreement for yourself, you need to consider the eventual growth of your company and adjust your partnership contracts accordingly. These adjustments can come in the form of four business partnership agreement stages.
The initial partnership agreement you create at the start of your business applies to you and your partner alone. The document mainly outlines each of your responsibilities and ownership stakes, as this functions as the first partnership contract between two associates.
Addition of Limited Partners
Once a business starts to take off, its original owners may consider adding another partner to the company. When this happens, they need to adjust their agreement to include their new associate. The new document should include the new partner’s voting rights and their minor equity ownership.
Addition of Full Partners
Suppose your company continues to grow, and you want to turn your limited associate into a full-time partner. Your new partnership agreement should include instructions to elevate your limited partner’s status into a full-time one.
The document should also outline their new voting rights and equity ownership, just like the original partners.
Continuity & Succession
The continuity and succession stage happens when one of your partners decides to retire or leave the company. Normally, your agreement will guide you through this stage. It should include how ownership stake and responsibilities will be divided among the remaining partners once someone leaves.
How to Make A Business Partnership Agreement For Your LLC in Nevada
Now that we know the different stages of a partnership agreement, let’s talk about how you can make one for your LLC in Nevada.
Start With General Information
The first thing you need to settle when making a business partnership agreement for an LLC is the general information about your company. State your LLC’s name, legal structure, and official location of business.
This portion of your document must explore the type of partnership you want to create.
Outline Your Business Operations
Once you’ve written the general information about your company, you can start drafting its business operations. Start by writing your partnership’s statement of purpose and define the goals you want to achieve through the partnership.
We also suggest you include your partnership’s duration in this section.
Define Each Partner’s Ownership Stake
Your agreement needs to include how much of the business each partner owns and their contributions. These contributions include monetary additions, time, assets, money, and the like.
Suppose you and your partner want to include non-monetary contributions. In that case, it’s up to both of you how you will calculate their value.
Your Decision-making Process
Another important thing you need to include in your agreement is your decision-making process. Summarize how you and your partner decide on things. We also suggest you include how you approve the addition of new partners and how you and your partners will share profits and losses.
One of the main advantages of an LLC is that it protects business owners and their assets from any civil cases. This section of the agreement defines the limit of liability each partner will face if their LLC is involved in a lawsuit.
You will need more than a partnership agreement to guarantee full liability protection. You should have other legal documents, like your articles of incorporation, to support it.
It’s normal for two partners to disagree now and then. And the only way you can prevent any conflicts from becoming a full-on legal battle is to have dispute resolution processes in your agreement.
Even if your partner is someone from your family or a long-time friend, this section is vital so that you don’t go straight to court. It should propose another alternative to resolving issues like mediation or arbitration.
Sometimes partners agree to dissolve their company for various reasons. And when this happens, they often use their partnership agreement to guide them through the dissolution process.
This section is meant for your partnership’s continuity and succession stage. It’ll guide you on how to proceed if one of your partners decides to leave your company or if you both decide to dissolve the business.
Create A Partnership Agreement With The Help of Experts
Undeniably, making a business partnership agreement for your LLC can take time and effort. But you can always seek assistance from NCH’s business formation services in Nevada.
Our business formation specialists will help you draft a robust and comprehensive partnership contract for your LLC. We’ll ensure that your agreement prepares you and your partner for anything, from small disagreements to major lawsuits.
To learn more about our services, visit our website here.