The prospect of starting a new business venture with a partner can be exciting and also nerve-wracking. With the best intentions in the world, your combined talents and shared aspirations and goals seem like the perfect springboard from which to launch your business together. However, partnerships are complicated relationships that often cause conflict without contracts and agreements explaining obligations and responsibilities. In this article, 50/50 profit sharing agreement, we take a look at this arrangement and assess the process and mechanism involved.
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Typical terms of the agreement
Each partner will share equally in any profit and be jointly liable for any loss generated from the business. In addition, each partner has an equal say in managing the business. This means that all decisions should be made together.
When entering such an agreement, consideration needs to be given as to what the parties will be bringing to the table. It is worthwhile spending some time at the beginning of the venture in order to establish and make clear what the parties will be responsible for. It may be the case that one party provides the finance and the other the expertise.
In any business partnership, you can divide the profits and losses in any way you want. The important issue is that all the partners agree on the ratios and sign a contract stating so. In a 50/50 profit sharing agreement, the profits are spit equally.
Major terms to include in a 50/50 partnership agreement include the name of the partnership, specific contributions by each partner to the partnership, each partner’s authority to bind the partnership to debt or contracts, specific duties of each partner, how to resolve disputes and how decisions are to be made. Each term does not require an equal split between partners but the profit/loss will be shared 50/50.
Implications for running the business
Your profit-sharing agreement should set out how the parties will be paid. For example, you might agree to a base salary and calculate profits after that is paid. All rules relating to the profit-sharing agreement should be written out. It would also be prudent to include a clause that ensures that one of the partners can’t take a loan out of the profits or make other expenditures without the full agreement of all the partners. Terms that spell out the dissolution of the partnership also should be included in the profit-sharing agreement.
A profit-sharing agreement should reference all parties involved by name and address at the top of the contract. You should write the name of the business you’re forming at the beginning of the agreement as well as the purpose of the business. Include references as to the date that the agreement is established as well as how long it’s expected to last. It is also important to note which bank account any profits will be deposited in and when these payments are due to take place.
A profit-sharing agreement usually includes restrictions as to what each partner can do with company resources. It also spells out the steps you need to take in the event that one of the partners dies. For example, you may write in the agreement that the remaining partners have the first option of buying out the remaining portion of the business from the estate of the deceased partner. You can place restrictions on the estate in the agreement that limit the estate’s involvement in the business.
Alternatively, you may include restrictions on how the remaining partner liquidates the business and distributes the profits. The main objective of the agreement is to cover every possible scenario in your original contract to avoid disputes and to continue operating smoothly in any event.
Are there any other points to consider?
There are some downsides to a 50/50 profit share agreement. This is highlighted when the parties disagree on a particular decision. Vital business decisions often get delayed when partners fail to reach an agreement.
Partners in a 50/50 partnership often reduce their ownership percentage to 49 percent each and give the 2 percent to a third trusted party. This third party has the deciding vote when the two majority partners cannot reach a decision. The law has remedies for 50/50 partnerships that cannot reach a material agreement and the business comes to a standstill. When this happens the court steps in and liquidates the assets of the business.
How we can help
We have a proven track-record of helping clients drawing up a 50/50 profit sharing agreement. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.
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