Starting a business with someone you trust often feels simple. As your business grows, though, bigger decisions may become harder to make. Questions about borrowing money, signing major contracts or expanding the business can sometimes lead to disagreements. Knowing who has the authority to make these decisions may help you avoid conflict and keep your business on track.
What determines who makes major decisions?
Your partnership agreement often provides the answer. Many agreements explain who may handle daily business activities and which decisions require approval from all or most partners.
If your agreement does not cover a specific issue, Pennsylvania law may help fill the gap. Under Pennsylvania’s Uniform Partnership Act of 2016, each partner generally has equal rights to help manage the partnership. Partners usually decide routine business issues by a majority vote. However, decisions outside the normal course of business may require every partner to agree.
Your partnership agreement may create its own voting rules, as long as they follow Pennsylvania law, since every partnership is different.
Which decisions often require partner approval?
Some business decisions carry more risk than others. Depending on your partnership agreement, partners may need to approve decisions such as:
- Signing a major contract
- Borrowing a large amount of money
- Opening a new business location
- Bringing in a new partner
- Selling important business property
- Merging with another business
Clear voting rules may help everyone understand when a matter requires approval and reduce confusion before important decisions arise.
Why do partners owe duties to each other?
Partners generally have a duty to act honestly and look out for the partnership’s interests. These responsibilities may help build trust and encourage partners to make decisions that benefit the business instead of themselves.
For example, a partner may need to share a conflict of interest, avoid competing with the business or provide important information before asking the other partners to approve a major decision. Taking these steps may help reduce misunderstandings and disagreements.
How can a partnership agreement help prevent disputes?
A well written partnership agreement may do more than explain who owns the business. It may also set clear rules for making decisions and handling disagreements before they become larger problems.
Your agreement might explain:
- How many votes major decisions require
- How partners break a tie vote
- What authority each partner has
- How partners should resolve disputes
- When a partner may buy out another partner
When everyone understands these rules, partners may find it easier to work through difficult decisions.
Clear rules can support a stronger partnership
Disagreements may happen in any partnership. When you understand your voting rights, your role in managing the business and your responsibilities to the other partners, you may feel more prepared to handle important decisions. A well written partnership agreement could provide a clear process for making decisions while helping protect both the business and the interests of everyone involved.