5 items that every partnership contract in New York should include

Entering into a partnership is an exciting time, but there are serious legal ramifications to consider.

In 2014, there were 3,613 business partnerships in the United States, according to the Internal Revenue Service. As defined by the IRS, a partnership is a business entity in which two - or more - people contribute labor, skill, money or property to an endeavor and expect to share in the profits or losses.

Partnerships are an excellent way to launch a company. However, when drawing up the contracts among partners, it is vital to protect interests through including the following:

1. Decision-making power

From the very start, there is no shortage of decisions that need to be made regarding how a company will operate. In the partnership contract, a clause should define what the decision-making process will be. This ensures that processes run smoothly, and that it does not take three months to settle on what color the walls will be.

2. Dispute resolution

At one time or another, it is likely that the business partners disagree on some issue. When that happens, how is the conflict resolved? A business contract outlines the path the case would take - hopefully seeking alternative dispute resolution or mediation in order to avoid heading to court.

3. Ownership percentage and profit allocation

These are two of the most important aspects of any partnership endeavor. The contract should clearly state how much money each person is putting into the business, which often provides a foundation for how much of the company each person owns. However, ownership percentage may also be based on how much each person actually works for the business.

Once ownership percentages are calculated, it may be easier to determine how profits and losses are allocated. Whatever that determination is, it needs to be put in writing and signed by everyone involved.

4. If one partner dies ...

It is a little morbid at the start of a business to imagine the death of a partner or a partner leaving, but for the continuity of the business, it should be considered. Take into account that a buy/sell agreement could address the issue, as it outlines the process by which the interest of the person leaving could be valued and then purchased.

5. Legally entering other contracts

Because partners have legal rights to the business, they each could legally commit the partnership to another contract. However, depending on the nature of the people involved, that power may need to be limited to just one or two people. A partnership contract outlines who has the ability to legally bind the company.

These contracts are essential to helping a company run as it should and minimize the risk of future legal issues. People who have concerns about this topic should speak with a business law attorney in New York.