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Business formation: don't forget these key partnership clauses

All it takes is one great idea for two or more individuals in New Jersey to enter into a partnership agreement in order to create a new business. However, before they do so, they should draw up a partnership agreement, which contains some key clauses.

First of all, a partnership agreement should include a clause regarding capital contributions. There should be clear-cut information about what types of contributions each individual will bring into the partnership, as well as an explicit statement regarding the percentage of ownership interest that each individual will have. Contributions can contain anything from cash, to assets, property or securities.

Also, a partnership agreement should specifically state what duties each individual will have. For example, each individual's power to make decisions on behalf of the partnership, management duties and what authority each partner has are only some duties that should be outlined in a partnership agreement.

In addition, a partnership agreement should outline how each partner will share in the partnership's profits and losses. Usually this is done through a percentage. It should also contain language regarding whether or not an individual will be able to periodically withdraw a certain from his or her percentage of the partnership profits annually, or whether the partners will receive their entire profits at once annually.

A partnership agreement should also contain language regarding how each party will be personally liable for the partnership's business obligations. This may have an effect on the individual's personal assets, making this type of clause all the more important.

Finally, keep in mind that disagreements are bound to arise between partners from time to time. Therefore, there should be a dispute resolution clause outlined in the partnership agreement. Some examples are utilizing mediation or arbitration before pursuing litigation.

This list is not all encompassing -- there are other provisions a well-rounded partnership agreement should have. Moreover, the post should not form the basis of a person's business formation. Due to the complex nature of partnership agreements, individuals may want to seek the help of an attorney, to make sure their partnership agreement is legally sound.

Source: FindLaw "5 Clauses Every Partnership Agreement Should Include," Aditi Mukherji, Oct. 9, 2013

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