A Partnership Agreement Can Help Prevent Partnership Disputes

In an earlier post I described some of the basics rights and responsibilities for members of a business partnership under Iowa’s partnership law, Iowa Code Chapter 486A.  But avoiding partnership disputes is more important than knowing your rights as a business partner under Iowa law.  A common method of eliminating or reducing partnership disputes is the existence of a partnership agreement among the partners.

Per Iowa Code 486A.103, partnership agreements usually govern the relations between partners and between partners and the partnership.  Iowa Code 486A.103 does provide a few exceptions to business partners’ freedom to enter into a partnership agreement, some of which I summarized in my earlier post.  But in general partners can set up their partnership in whatever manner they see fit.

A partnership can prevent many legal problems and partnership disputes.  The partnership agreement should include the terms and conditions of the partnership.  Some of the standard topics for partnership agreement include:

1. The business’s name.
2. The business partnership’s milestones and goals.
3. Each partner’s percentage of ownership.
4. The manner in which profits will be divided.
5. How important partnership decisions will be made.
6. The procedures for a handling a partner’s withdrawal or death or the introduction of new partners.

The best practice is to set up the partnership equally.  That means each partner has an equal ownership interest in the business and shares equally in the profits.  Many partnership disputes arise when one or some of the partners believe that they’re being treated unfairly or unequally.  Treating all partners the same in all respects from the beginning (to the extent possible) can help reduce the risk of bad feelings expanding into a full-blown partnership dispute.