A Brief Introduction of Restaurant Partnership Agreement
Restaurant partnership agreements are entered into by two partners who want to own and operate a restaurant. The agreement would include the complete description of the restaurant being operated, including the location and the registration number. The restaurant will be owned as a limited liability corporation.
The agreement is drafted according to the laws of the state where the restaurant is incorporated. Partners would have equal ownership with equal capital and time contributions. The restaurant shall continue to be in operation unless mutually terminated by the partners.
Decisions regarding the operation of the restaurant will be taken jointly by both partners. A separate bank account will be opened for financial transactions involving the restaurant. For any ventures, contracts, or partnerships related to the restaurant that a partner might want to enter into, the approval of the other partners is required.
The daily operation of the restaurant would be the responsibility of the general manager who would be hired for this purpose. A salary would be paid as compensation for this task — information regarding the liquidation of the restaurant and the payment of creditors. The events which lead to termination of the venture will also be incorporated in the agreement.
Who Takes the Restaurant Partnership Agreement?
If you want to own a restaurant jointly in partnership with another person, then restaurant partnerships are required. There are certain laws that govern agreements for restaurants, and following these laws will ensure that the partnership is legal.
Purpose of the Restaurant Partnership Agreement
To jointly own and operate a restaurant, there have to be certain terms and conditions which need to be followed, and these need to be in accordance with the laws of the state. It must be formed as a legal entity so that it is governed by certain rules and regulations. It will also have some rights and privileges.
You can be a partner restaurant with another restaurant, and this will operate like a franchise. The benefits of this are that you will enjoy the reputation of the parent restaurant and their goodwill. This is a great way to enter the restaurant business.
With such agreements, the possibilities of disputes regarding the distribution of profits and capital contribution or operation of the restaurant will be minimized. If there are any disputes between the partners, they can be resolved as per the procedure mentioned in the contract.
Contents of the Restaurant Partnership Agreement
The partnership agreement for the restaurant business should ensure that the terms and conditions are fair to both partners.
Here are the contents of the agreement:
- The names of the partners of the restaurant
- Complete details relating to the restaurant
- The legal status of the restaurant: Limited liability
- The effective date of the agreement
- Capital contributions and profit-sharing by the partners: Should be equal
- Decisions regarding operations: Jointly taken by both partners
- Appointment and responsibilities of the general manager: Remuneration and job description
- Separate Bank account: For transactions relating to the restaurant
- Termination of partnership: Events which will lead to the termination
How to Draft the Restaurant Partnership Agreement?
A restaurant partnership agreement template can be used as a reference while drafting the agreement. Necessary modifications to the template can be made as required.
Here are the points you need to consider:
- Eligibility for participation: Both partners should be over 18 years of age, of sound mind and not be coerced to enter the contract
- Profit-sharing and capital contribution: The ratio should be clearly mentioned
- Duties of the partners: The rights and responsibilities of each partner should be stated
- Governing laws
- Terms of the contract: Should be fair and offer the same benefits to both partners
- Confidentiality clause: No party should share any trade secrets with a third party
- Dispute resolution clause
- Termination clause: For premature termination of the agreement
- Signature: A page of the contract is to be reserved for the signature of both parties
Before signing a restaurant business partnership agreement, both parties need to study all the clauses and negotiate the terms and conditions so that they are fair to all the partners. Only after mutual consent has been obtained, should both parties sign the contract
Benefits & Drawbacks of the Restaurant Partnership Agreement
The benefits of a restaurant partnership agreement are:
- Protection of interest: The interests of both partners are protected with regard to profit sharing.
- Decision making: All decisions are jointly taken.
- Legal recourse: If any partner violates any clause, then the other partner can take legal action.
- Termination: If any partner dies or wants to quit, the agreement can be terminated by providing sufficient notice.
The drawbacks of a restaurant partnership agreement are:
- A partner can engage in other ventures relating to the restaurant without the consent of the other partner.
- Disputes: There will be regular disputes with regard to responsibilities and profit-sharing.
- Penalty: The partners will have to pay the penalty for operating a restaurant without an agreement.
What Happens in Case of Violation?
The partners should study a restaurant partnership agreement sample and understand the clauses. In case of violation, the defendant may demand money damages. For a total breach, lost profits would be included in the claim. Under restitution(1), the injured partner would have to be restored to their original position.
If there was any fraud involved while drafting the agreement, then the contract would be canceled under rescission or a fresh contract by the court under reformation. In certain cases, monetary compensation is not accepted, and the other party has to fulfill their obligation.
While entering a restaurant partnership agreement, both parties need to ensure that the agreement is fair. The important clauses like profit-sharing, dispute resolution, confidentiality, and termination need to be included. Both parties should read the terms and conditions before entering the agreement.