Why a comprehensive partnership agreement is essential

If you’re going into business with a friend or someone you’ve known for a long time — maybe from your college or military days — you may not be very concerned about your partnership agreement. You both have the same goals for the business, so you assume that you’ll work things out as issues come up. That’s a big mistake. Business partnerships, which consist of two or more owners, benefit by having clear, detailed, comprehensive agreements from the start. This means having some serious discussions now about how the business will be run in the hopes that it will minimize conflicts down the road. Every partnership agreement is unique to the business and the people who own it. However, let’s look at some key elements that they all should include. Contributions: You need to address how much money and capital (including things like equipment) each person is putting into the business at its inception. However, you should also address how much (or what percentage) each is expected to contribute in the future. Responsibilities and decision-making: It’s also good to detail which areas each partner is responsible for and how much time each is expected to put in. It’s extremely important to detail how decisions will be made. Maybe each person will have final say over decisions in their areas of expertise. Differences of opinion can destroy partnerships, so it’s wise to outline a dispute resolution process Distribution of profits: Will profits be split evenly? If not, how will they be divided? Will partners take a salary? If not, how will they be paid? Ownership: You should address issues like whether a partner can sell their share of the business to someone else. You might want to detail whether you can take on additional partners. What if a partner gets divorced? You likely want to protect against a spouse being able to get part of your business in the property settlement. Dissolution: You’re just starting out, so you probably don’t want to consider the possibility you’re your partnership will end. However, it may. Your agreement should include clear steps for ending the partnership. An experienced attorney can help you work out a partnership agreement that fits your needs. They can make sure it addresses all of the scenarios it’s impossible for you to imagine. This will help you better focus on building your new business.