5 Major Reasons to Have a Written Partnership Agreement

Handshake business agreements have become outdated. Today, almost every business knows the importance of the written contract. While the prospect of earning money and making a profit on a new venture is thrilling, never forget to seal the deal with a contract before getting started. You never know when your partner decides to cancel the agreement, file a lawsuit against you, or you have to face court trials for not following the Federal Arbitration act. In this regard, a written partnership agreement provides both security and peace of mind to all parties in any business dealing. For writing your contract, you will have to hire a lawyer. 

He will help you point out risks that could affect your company and things you need to add. If you are not convinced already, I have mentioned in detail a few of the reasons how this written contract can benefit you. To learn about them, continue reading.


  • Avoid States Default Rules

You do not want to depend on your state default rules. When you do not have a written agreement in place, you will have to operate in accordance with these default rules. It means you will not have much control over your business. Therefore, having a written partnership contract will allow you to modify the rules as per your business’s best interests. This way, you have more control over the company and can avoid those default rules defined by the state. 

  • Define Who Will Have the Most Control 

When writing the contract, you have to define the amount of control every partner will have clearly over the business. Typically, it is determined based on possession percentage, capital contribution, or any other criteria you might have already decided. However, when doing so, think through what will happen when one of your partners chooses to break the partnership or sell their share. Is there a new partner coming in to fill up space? Will he have as much control as the founders? What will happen if a partner dies? It would be best if you mentioned every possibility to prepare in advance and know who will have more control over the business.

  • Remove a Troublesome and Non-Performing Partner

For every business to succeed, having an equal contribution from each partner is imperative. That is why it is one of the most important things you will have to write in the agreement, as it will directly affect your business. While every partner intends to contribute to the company to make it grow, the reality is often not the same. Over time, partners who were performing at some point can grow apart and focus less on the business—as a result, jeopardizing the company. If the business does not grow as anticipated, the possibility of a partner losing his interest is high. Even worse, he may end up joining a competitor. In this case, the owners should have the authority to remove the partner who is no longer playing any role but still owns a company’s share. The partnership contract must have the process of removing the non-performing partner.

  • Have More Clarity

A handshake acts like a contract for many business deals, and it is one of the major reasons why most contracts fail.  It is important to know that when you do not have a written agreement in place, parties can change, conditions can change, memories can fade, and one person’s version of the deal can be different than another’s. For discussions that involve business planning, tasks, and money management, verbal contacts are not enough. Therefore, it is always a wise idea to put agreements into writing. It will allow everyone involved in the project to review all the terms, rules, laws, and conditions before starting the project. Even if they want to change anything from the contract, you can negotiate with them and address the issue before committing to the partnership.

  • Ensure Protection

Considering you and your partners will be investing a large amount of money, intellectual property, and valuable resources into an organization, a contract will offer you the protection you need. It is necessary because if the agreement fails or the partnership breaks, you will need the security of everything you have invested in. 

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