You’ve started your own business and it’s absolutely thriving. Now, however, you feel the need to bring in a partner whose skills complement your own so that you can move onto the next stage of your company’s development.
That means it is time to get a partnership agreement in place.
Why do you need a partnership agreement?
Partnership agreements perform several different functions. They can:
- Help clarify each partner’s role and responsibilities within the company
- Provide a framework for dispute resolution
- Protect the interests of everyone involved (and the company) in case of problems
What are the top things that need to be in every partnership agreement? Consider these:
- The anticipated length of the partnership – Whether that’s open-ended or set to expire at a specific time, this should be spelled out in the agreement.
- Each person’s decision-making authority – Who has the final say over which aspects of the business when there’s no meeting of the minds?
- Contributions and ownership rights – How much capital is each party expected to commit to cover the cost of operations? What percentage of the business does each partner own?
- How profits and losses are handled – How (and when) will profits be paid to each partner? What happens if there is a loss? When can profits be withdrawn from the business? What part goes back into the business?
- Provisions for ending the relationship – What happens if one party dies, decides to retire or just wants to move on?
- Assurances that protect the company – Does each partner need life insurance that will pay to the business? Are partners required to get prenups or postnuptial agreements to protect the company if they should divorce?
Setting up your first partnership agreement doesn’t have to be an intimidating process. You can get experienced legal guidance as you walk through the steps. That can help you better anticipate your company’s future needs.