Fifty Questions to Answer In a Partnership Agreement A written partnership agreement should answer the following 50 questions. You and your partner must decide whether to use an attorney to draft the agreement, or an accountant to guide you toward the best tax structure for your needs. You can save money by discussing these ideas with your partner before meeting with a lawyer or accountant. Many partners prepare a draft of an agreement and have a lawyer formalize it after they have prepared answers to all 50 questions.
Company Name, Location and Hours
1. What are the partners’ names? Are they individuals, corporations or Limited Liability Companies? What is the designated name and purpose of the partnership?
2. Will we register the company name as a trademark?
3. Where will the office be located? Will we own it or rent it? Will any partners work out of a home office full-time or part-time?
4. What will be our working hours? What autonomy will partners have to set their own hours? Do we need to service clients during any certain time each day? How often will the partners meet to discuss business?
5. What will each partner contribute to the business in terms of:
• Tools and equipment
• Intellectual property (know-how)
• Network and professional contacts
• Insurance, benefits, company perks
6. What is each partner’s ownership share of the business?
7. How will we measure job performance and hold each partner accountable for meeting expectations?
8. What partnership structure will we choose and how will that affect our taxation? e.g. general partnership, limited partnership, limited liability partnership (LLP) limited liability company (LLC).
9. Will the Agreement limit the joint and several liability that partners have by law for their partners’ behavior? Will the partners’ contractual commitments and representations bind me?
10. What is my liability if my partner does something illegal while representing the company?
11. Who is responsible for what percent and kind of company debt? Authority
12. How will authority and decision making be structured? Will we operate by consensus, or based on share of ownership? What is the tie-breaking mechanism used to avoid deadlock? Will partners have authority to control certain functional areas of the business without the approval or involvement of the other partners? What is the authority to act on behalf of the company without unanimous agreement?
13. What is the procedure for borrowing money in the company name? When does borrowing require approval of the other partners? What is the scope of expense account authority before needing to consult with the other partners?
14. Who will handle what? How will your roles and responsibilities be divided? Who will have what management duties?
15. How will workload be assigned and monitored?
16. How will we choose a lawyer, accountant, banker, insurance agent or any other professional service provider?
17. What process will be used to expand and admit new partners?
18. How will we hire employees or contract workers?
19. How will we select vendors and suppliers?
20. How will we select customers or clients?
21. What kind of business liability and/or property damage insurance will we purchase?
22. Will we provide medical, life or disability insurance or a pension plan for ourselves and our employees? 23. Will we provide key man insurance on the lives or disability of the partners?
Ownership and Compensation
24. How will ownership percentages be determined?
25. If one partner had the original idea for the business, should he receive compensation or additional ownership rights?
26. How will profits be apportioned? How will losses be allocated?
27. What amount of profits will be withheld for investment back into the business?
28. How will salaries or draws against profits be determined?
29. How will company perks be assigned? Cars, stadium/theater seats, etc.
30. What other benefits will we provide? Vacation, holidays, sick time, etc.
31. How will we provide for the unexpected? Serious family illness, disability, or some other life event that disturbs a partner’s ability to work productively?
32. What extent of absence from productive work will require renegotiation of the partnership agreement? 33. Who will keep the books? What financial statements will the partners receive? How regularly will they be prepared?
34. Are there any restrictions on engaging in other outside business activity?
35. Will we forbid conflicts of interest and direct competition?
36. What happens to the business assets if a partner dies?
37. How will the value of the partners’ shares of the business be determined?
38. If a partner leaves, will the company pay for his share? Can a departed partner remain as an investor?
39. Will a departing partner receive the same amount for his share if he joins the competition?
40. What restrictions and approvals apply to a partner selling his share of the business to a third party?
41. Do the other partners have a right of first refusal for the shares of a partner who dies or leaves?
42. Will the partners be required to sign a non-compete agreement? (These are now illegal in California.)
43. What is the process for firing a partner for incompetence or malicious behavior? What happens if a partner becomes impaired by drugs or alcohol, or gets arrested?
44. What process will we follow if an outsider offers to buy the business?
45. Upon dissolution of the partnership, how will shared assets be divided?
46. Who gets the rights to intellectual property, customer lists, company files and records?
47. Who can continue to use the company name and logo?
48. What method of alternative dispute resolution (arbitration or mediation) will be used in lieu of litigation to resolve disputes between the partners? How will the arbitrator/mediator be chosen?
49. What is the procedure for amending the partnership agreement?
50. If a partner fails to make a contribution as provided in the partnership agreement, or otherwise violates the agreement, what are the consequences?