Explain why it is considered better to make a partnership agreement in writing.
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U R ANSWER ♠.....
WRITTEN FORM OF PARTNERSHIP FIRM IS CALLED PARTNERSHIP DEED.
IT SHOWS LEGAL PICTURE OF PARTNERSHIP FIRM.
IT IS USEFUL TO FACE LEGAL PROBLEM.
IT IS USEFUL FOR THE FUTURE OF THE FIRM.
A partnership agreement is a contract between partners in a partnership which sets out the terms and conditions of the relationship between the partners, including:
Percentages of ownership and distribution of profits and losses
Description of management powers and duties of each partner
Term (length) of the partnership
How the partnership can be terminated
How a partner can buy his/her share of the partnership.
A partnership agreement should be prepared when you start a partnership. An attorney should help you with the partnership agreement, to make sure you include all important "what if" questions and avoid problems when the partnership ends.
Read more about all the terms a partnership agreement should contain in "Partnership Agreement Terms."
Your attorney will tell you that it's important to have a partnership agreement. Believe it. Basically, a partnership agreement is set in place to deal with every possible situation where there might be confusion, disagreement, or change. Here's why every partnership should have an agreement, right from the beginning:
To set up the roles and responsibilities of each partner and to describe how decisions are made. Who is managing partner? What are the responsibilities of individually named partners? How do roles and responsibilities change?
To avoid tax issues, by having the tax status of the partnership spelled out, and to show that the partnership is distributing profits based on acceptable tax and accounting practices.
To avoid legal and liability issues, spelling out the liability of individual partners (general partners vs. limited partners) and the liability of all partners if there is a liability issue with one partner.
To deal with changes in the partnership due to life challenges of existing partners - partners who leave, become ill or incompetent, get divorced, or die. These are usually dealt with in buy-out agreements with each partner.
To describe the circumstances under which new partners can enter the partnership.
To deal with partner issues, like conflict of interest and non-compete agreements.
To override state laws. Some states have required language in partnership agreements. But this language may not be the best for your particular partnership. If you don't have a formal written agreement, you may find yourself having to abide by the default state laws.
To make disputes easier. It's a good idea to include language in your partnership agreement that describes how disputes will be handled. Will arbitration be a possibility? What will be the responsibility of parties to the dispute? Who pays for what?