See below
Explanation:
Business partners need clear understandings of their financial and legal relationships.
Partnerships are one of the most common types of small businesses when more than one person is involved in a company's creation. While working with a business partner gives your business more time and money to put toward growth, it also brings a series of issues between the members involved. Business partners can use partnership agreements to set their own rules for one another.
Uniform Partnership Act
The Uniform Partnership Act is the formal standard for defining business partnerships. The UPA states that a partnership is any business with joint ownership of its resources by two or more people. A business in which multiple people share returns or profits is also a partnership. Partnerships do not need to have incorporation documents or formal contracts between partners, although many do. This means that any time two people come together to form a business, they are becoming business partners and taking on shared responsibility for the business they form.
Partnership Agreements
A partnership agreement is a formal, legally binding document that business partners sign to outline their rights, responsibilities and financial involvement in the partnership. Business partners can draft and sign any partnership agreement they wish. However, each business partner who signs is bound to the agreement's terms. New partners who join the business later may need to sign the same agreement, or the partners can redraft the partnership agreement.
Liability Rules
Without assigning financial liability and stake in a company, business partners are equally liable for, and entitled to, a company's financial dealings. This means that each of a company's partners shares the same tax liability for profits from the business. Likewise, if the business makes a profit, all partners share equally in those profits. Partnership agreements can assign liability to specific partners and outline what percentage of profits certain partners are entitled to. Business partners can only eliminate liability altogether by forming a corporation, which brings added legal and financial protection.
Rules for Business Operations
A partnership agreement can also include rules for how business partners share the duties of managing a business. For example, the agreement can indicate that one partner is responsible for handling financial accounting and management of the company's office, while another is responsible for developing new products and overseeing marketing efforts. Duties not assigned in the partnership agreement become shared obligations. These rules allow business partners to understand not only their own responsibilities but also which areas of the business are under another partner's control.
