While many entrepreneurs are executives develop online businesses or software the partnership agreement is the simplest and most convenient form of protection available in the United States.
“The Uniform Partnership Act” in the United States which has been codified into statute in many States defines a partnership as:
…the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
In determining whether a partnership has been formed, absent a partnership agreement, courts will look at property held in joint tenancy, tenants in common or in the partnership’s name. The court will not presume a partnership if gross returns are divided among persons but will presume a partnership was intended if a person receives a share of the profits; unless the person was receiving the money for a past debt, as rent, for services rendered as an independent contractor or interest on a loan.
What most businesses do not want is a court to decide whether a party was a partner or not. A partnership agreement can be as simple as one page and can get as long as 100 pages depending on the complexity of the deal, transaction or business.
Web 2.0 has dramatically changed the landscape of business and entrepreneurship. It is now easier than ever to start an online store, create a channel for your movies or episodes, become a celebrity or even develop complex software. The speed at which this occurs and the potential growth leaves a partnership agreement as the most nimble and effective option for investors and start-ups.
A partnership agreement should include the parties to the transaction, how profits will be split, who is responsible for debt and what each partner is responsible for. It can also include timelines for objectives to be met, options for dissolution and may divide partnership property. Again all considerations vary depending on the partnership proposed.
A partnership agreement is not needed, after all the courts will imply a partnership exist in the absence of an agreement if the factors are met; but this is what businesses should seek to avoid. A simple partnership agreement, whether a general partnership or limited partnership, will avoid confusion and can save a company millions as they grow to the next level.