You may be an entrepreneur who has a great investment opportunity but lacks the capital needed to get your project off the ground. You have tried your local bank, only to find it is reluctant to lend these days, even if you or your company has perfect credit. The solution is to prepare a partnership agreement and find an investor who will contribute all the capital needed to fund your opportunity.
Decide on how much capital will be contributed to the partnership by your partner. If you need the funds in stages, this must be spelled out in your partnership agreement. The agreement should state that all funds have been contributed by the investor and that the person's capital interest is 100 percent. Since you have not invested any amount, your capital interest is zero.
Determine how profits and losses will be allocated. In a partnership, you can state how much of the percentage distribution of profits will be allocated to your investor and how much to yourself. Typically, managers of partnerships receive 25 percent, while the investors receive 75 percent. In the event of a loss, your investor can write off that amount on his income tax return.
State your authority and management duties in the partnership agreement. Failure to do this could result in your investor taking over the entire project. If you partner wishes to have some participation in the decision-making process, outline her duties along with yours.
Set up buyout procedures in case your partner dies or becomes incapacitated. In some situations, the partnership agreement can say that the partner's heirs will inherit his partnership interest. Otherwise, you may propose a buyout price, which can be determined at that time.
Describe your idea first to get feedback from your investor.
Always have a qualified attorney review all partnership agreements before signing or proposing the opportunity to your investor.
- Describe your idea first to get feedback from your investor.
- Always have a qualified attorney review all partnership agreements before signing or proposing the opportunity to your investor.
Frank Nagy started writing articles relating to business finance in 2010. His articles have been published on VentureCapitalResources.com and Business.com. Nagy's career in banking and finance began in 1998 when he obtained his mortgage broker license and launched Frank Nagy Financial Services.