A partnership agreement is the heart and soul of any business entity with multiple owners. This legal document articulates the rights and obligations of each party, ownership terms, dispute management as well as what happens when one party wants out.
However, a partnership agreement is not necessarily cast in stone. You may consider updating or revising your partnership agreement under the following circumstances:
When you are changing the entity status
During the course of the partnership, you may change the entity for a variety of reasons (for instance, from Ltd. to LLC.,). Depending on the type of change and resulting implications, you may need to update your partnership agreement too.
Changes in state and federal laws
Laws change from time to time. When the change in law invalidates sections of your partnership agreement, you need to act. Remember, ignorance of the law is never an excuse.
When disputes arise
Disputes are never uncommon in any relationship. However, after weathering the storm, it may make sense to revise and update your partnership agreement to avoid running into the same problem down the road.
When there are mergers or divisions
Sometimes, one partnership may decide to merge with another entity. In this case, a new partnership agreement may be necessary.
Likewise, when a new partnership comes on board or when an existing partner opts out, you may need to update the existing partnership agreement. This is essential for assigning new roles as well as allocating partnership assets for tax purposes.
Safeguarding your interests
A partnership agreement is a vital document for any entity that is owned by more than one party. But once you have a watertight partnership agreement in place, it is important that you review and keep it updated to protect your interests.