Agreement for Sleeping Partner: What It Is and Why You Need It

When going into business with others, it`s important to have a clear agreement in place to ensure that everyone is on the same page and that there are no misunderstandings or disputes down the line. This is particularly true when it comes to sleeping partners, whose role in the business may be less active than that of other partners. Here`s what you need to know about agreements for sleeping partners.

What is a Sleeping Partner?

A sleeping partner, also known as a silent partner, is someone who invests money in a business but has no day-to-day involvement in its operations. This means that they don`t take part in decision-making or management, but they receive a share of the profits (or losses) based on their investment.

Why Have an Agreement for Sleeping Partners?

Just because a sleeping partner isn`t actively involved in the business doesn`t mean that they shouldn`t have a say in how things are run. For example, they may want to have a say in major decisions that could affect their investment, such as changes to the business model or the decision to take on debt.

An agreement for sleeping partners can help to avoid confusion and disputes by:

1. Outlining the sleeping partner`s role in the business and their rights and responsibilities.

2. Setting out how profits or losses are divided among partners.

3. Establishing a process for making decisions that affect the business.

4. Outlining what happens if a partner wants to leave the business or if the business is dissolved.

5. Protecting the interests of all partners involved.

What Should Be Included in an Agreement for Sleeping Partners?

An agreement for sleeping partners should be tailored to the specific needs of the business and the partners involved. However, there are some key elements that should be included.

1. The sleeping partner`s investment amount and how it will be used.

2. The rights and responsibilities of the sleeping partner, including their veto power over major decisions.

3. How profits and losses will be divided among partners.

4. How and when the sleeping partner can withdraw their investment.

5. How the partnership can be dissolved and what happens to the assets and liabilities of the business.

6. Agreed-upon procedures for resolving disputes.

7. Confidentiality and non-compete provisions.

8. Other relevant clauses, such as indemnification and insurance provisions.

Conclusion

An agreement for sleeping partners is an essential document for any business that has this type of partner. It helps to ensure that everyone is clear on their responsibilities and rights, which can prevent misunderstandings and disputes down the line. By taking the time to create an agreement that is tailored to your business, you can protect your interests and those of all partners involved.