Partnership Agreement for Sleeping Partner

Partnership Agreement for Sleeping Partner: What You Need to Know

Partnerships are a common form of business organization among entrepreneurs. A partnership agreement sets out the terms and conditions of the partnership, including how profits and losses are shared, how decisions are made, and how disputes are resolved. But what if one partner isn`t going to be actively involved in the business? That`s where a sleeping partner comes in.

What is a Sleeping Partner?

A sleeping partner, also known as a silent partner, is a partner who contributes capital to a business but doesn`t take an active role in its management. In other words, they invest money in the business but don`t participate in the day-to-day operations.

While a sleeping partner may not be involved in the management of the business, they still have a stake in the success of the partnership. That`s why it`s important to have a partnership agreement that outlines the rights and responsibilities of all partners, including sleeping partners.

What Should be Included in a Partnership Agreement for a Sleeping Partner?

1. Capital Contribution: The partnership agreement should specify the amount of capital the sleeping partner is contributing to the business. This can be in the form of cash, property, or other assets.

2. Profit and Loss Sharing: The agreement should also specify how profits and losses will be shared between the partners. Usually, this is based on the percentage of capital contributed, but it can also be based on other factors such as the level of involvement in the business.

3. Decision-Making: Even though the sleeping partner isn`t involved in the day-to-day operations, they still have the right to be informed about major business decisions. The partnership agreement should specify how decisions will be made and how the sleeping partner will be kept informed.

4. Liability: A sleeping partner is still liable for the debts and obligations of the partnership, so the agreement should outline how liability will be shared.

5. Withdrawal or Dissolution: The agreement should also specify how and when a sleeping partner can withdraw from the partnership or how the partnership can be dissolved.

Why is a Partnership Agreement Important?

A partnership agreement is important for all partnerships, but it`s especially important when one partner is a sleeping partner. The agreement provides clarity and certainty about the rights and responsibilities of all partners, which can help avoid misunderstandings and disputes down the road.

For example, if the sleeping partner expected to receive a certain percentage of profits but this wasn`t specified in the agreement, they could be left feeling aggrieved. Similarly, if the active partner made a major business decision without consulting the sleeping partner, this could lead to tension and conflict.

In conclusion, a partnership agreement for a sleeping partner is a crucial document that should be carefully drafted and reviewed by all partners. By clarifying the rights and responsibilities of all partners, the agreement can help ensure a successful and harmonious partnership.