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3 times a partnership agreement should be updated

On Behalf of | Jun 17, 2024 | Business Litigation

When you started your business partnership, you were smart enough to get a written agreement into place. Written partnership agreements can make sure that partners are on the same page and circumvent a lot of potential problems.

However, all relationships evolve over time if they want to remain effective and fair. Like your relationship with your business partner, your agreement may also need to occasionally be revised. Here are some times when renegotiation of a partnership contract should be considered:

The business dramatically expands or contracts

When a business grows, it often requires a more complex organizational structure, additional resources and different management strategies. Conversely, if the business contracts, the partnership agreement may need to reflect a leaner operational model with new roles, responsibilities and profit-sharing arrangements.

New partners are brought in or old partners leave

The dynamics of a partnership automatically change when partners leave or get added in. New agreements should clearly outline partnership interests, buy-in or buy-out procedures and the redistribution of roles and responsibilities.

The investment and capital contributions change

As the business evolves, the initial capital contributions by partners may need reassessment. New investment opportunities or financial strategies might necessitate additional contributions from partners, which should be reflected in the agreement. The original profit and loss distribution might no longer be appropriate or fair.

These are not the only times that a partnership agreement should be reevaluated, but they are some important ones. If it has been a while since you began your partnership, you should probably review it and see how it matches up with your current operations. Legal guidance can help you reframe your agreement so that it remains effective and continues to support your company’s success.