What Should Be Included In Your Business Partnership Agreement?
At The Business Law Group, we work with companies across the greater Chicago area to build smart, forward-thinking legal foundations that help their businesses thrive. One of the most important legal tools any co-owned business should have is a well-drafted partnership agreement. While many business owners enter partnerships based on trust or a handshake, we’ve seen firsthand how costly and time-consuming it can be when expectations aren’t clearly outlined from the start.
A strong partnership agreement can prevent misunderstandings and protect all parties involved. In Illinois, a partnership agreement serves as the roadmap that governs your business’s daily operations, your rights and duties as partners, and the procedures to follow when things don’t go according to plan.
Understanding The Illinois Uniform Partnership Act In Illinois
In Illinois, partnerships are governed under the Illinois Uniform Partnership Act, found at 805 ILCS 206/1 et seq. This statute outlines the default rules that apply to partnerships when there is no written agreement in place. However, most business owners don’t want to rely on default laws to determine the fate of their hard work and investments. That’s where a customized partnership agreement becomes critical. By having a written agreement, we can help you override default rules and make sure the terms truly reflect your shared goals and vision.
Essential Terms Every Partnership Agreement Should Cover
When we draft partnership agreements for our clients, we focus on clarity, precision, and the practical realities of running a business in Illinois. A partnership agreement should always define who the partners are and what they are contributing to the business, whether that’s money, property, or services. It should also lay out how profits and losses will be allocated, including how and when partners can withdraw funds.
Another key provision is management and decision-making authority. Will decisions be made unanimously, by majority vote, or will one partner have more control? We recommend clearly spelling out who can sign contracts, hire staff, and make financial commitments. We also help clients address operational roles, including who will be responsible for sales, operations, marketing, or client relations.
Dispute Resolution And Exit Strategies
Even the most stable partnerships can face disagreements. That’s why it’s crucial to include a dispute resolution clause in your partnership agreement. We often recommend mediation or arbitration before litigation to save time and preserve relationships. Just as important is having an exit strategy. Whether a partner retires, wants to sell their share, or passes away, your agreement should outline a buyout process that’s fair and efficient.
We also prepare provisions dealing with dissolution. If the partnership ends, how will assets be divided? Who takes on debts? By addressing these difficult questions in advance, we help our clients avoid unnecessary conflict and costly court battles.
Protecting Intellectual Property And Confidentiality
Your business may rely on trade secrets, proprietary processes, or brand assets. A comprehensive partnership agreement must protect these valuable resources. Our legal professionals draft clauses that ensure confidential information stays private and clearly establish who owns intellectual property created during the partnership. This is especially critical in industries such as tech, media, and consulting.
Restrictive Covenants And Non-Compete Agreements
In many situations, we advise our clients to include non-compete or non-solicitation provisions in their agreements. These clauses can prevent a departing partner from using client relationships, business contacts, or proprietary knowledge to start a competing business. Under Illinois law, courts will enforce these agreements if they are reasonable in scope, geography, and duration. Including these protections from the outset helps keep your business secure.
Compliance With Tax And Regulatory Obligations
We also use partnership agreements to help our clients stay compliant with state and federal requirements. This includes addressing how taxes will be handled, who will sign and file returns, and how accounting will be conducted. We also work with your accountant or tax advisor to ensure your business structure aligns with your tax strategy.
Insurance, Liability, And Indemnity Provisions
Another key area we address is liability and risk management. Illinois law allows general partners to be personally liable for the business’s debts and obligations unless otherwise agreed. We help draft indemnity clauses to protect individual partners when appropriate, and we discuss how insurance policies should be maintained to reduce exposure. These risk-prevention steps help safeguard your personal assets and the future of your company.
Regular Reviews And Updates
A strong partnership agreement isn’t something you draft once and forget. As your business grows, your needs and goals may change. We recommend reviewing your agreement regularly and updating it as necessary to reflect changes in ownership, operations, or applicable laws. With our General Counsel Package, our clients can easily revisit and revise their agreements without unpredictable legal fees.
Frequently Asked Questions About Business Partnership Agreements In Illinois
What Is The Purpose Of A Business Partnership Agreement?
A partnership agreement outlines the rights and responsibilities of each partner, how decisions will be made, how profits and losses are distributed, and how disputes will be handled. It protects all partners by reducing misunderstandings and provides a legal roadmap if problems arise.
Can I Rely On Verbal Agreements Or Handshakes In Illinois?
While verbal agreements may be legally recognized, they are difficult to enforce. Without a written agreement, your partnership will be governed by default rules which may not reflect what you and your partners intended. A written agreement provides clarity and security.
Do All Partners Have Equal Decision-Making Power?
Not necessarily. Your agreement can allocate decision-making authority however you choose. Some partners may have greater control over day-to-day operations or financial decisions. We help customize your agreement to reflect the structure that works best for your team.
What Happens If One Partner Wants To Leave Or Retire?
A strong partnership agreement should include an exit strategy that explains how a partner’s share will be valued and transferred. This could include buyout provisions, timelines, and restrictions on transferring ownership to outside parties.
Can We Include A Non-Compete Clause In Our Partnership Agreement?
Yes, Illinois courts will generally enforce non-compete and non-solicitation clauses if they are reasonable in duration, geographic area, and scope. These clauses can protect your business from former partners who might otherwise compete or solicit clients.
How Can I Make Sure Our Partnership Agreement Is Legally Enforceable?
The best way to ensure your agreement is enforceable is to work with an experienced attorney who understands Illinois business law. We make sure your agreement meets legal standards and is tailored to your specific needs.
Contact The Chicago Business Lawyers® For Trusted Legal Advice
At The Business Law Group, we’re here to help your business succeed with confidence and clarity. If you’re forming a new partnership or updating an existing agreement, our Chicago business attorneys will make sure every important issue is covered. We’re proud to be the trusted legal team for businesses throughout the Chicago area.
To speak with one of our Chicago business lawyers, call our office at (224) 353-6498. Let us help you protect your business and build a foundation for long-term success. The Business Law Group proudly serves clients throughout the greater Chicago area. We are The Chicago Business Lawyers®.
Business Law Group
15 N. 2nd St., Suite 100
Geneva, IL 60134
Phone – 224-353-6498
The information contained in these blog entries and on this website does not constitute legal advice. While the content discusses various legal issues, it is not intended to and does not provide legal advice. If you are seeking legal advice, you should contact the Business Law Group at 224-353-6498 to schedule a consultation.
