An adage tells us that two heads are better than one. Teaming up with someone who shares your vision and complements your strengths is a powerful tool for success in business. Steve Wozniak knew how to build a computer. Steve Jobs knew how to sell it. Together they built a business empire.
For every Apple, Inc., countless business partnerships fall apart and dissolve over misunderstandings, unbalanced roles or unmet expectations. No matter how passionate and prepared you are to manage your business, you can’t predict the future. That’s why it’s important to have a partnership agreement in writing.
Clear Communication is the Key to a Successful Partnership
It takes more than a common vision to make a business work. You and your partner have to talk about goals, responsibilities and performance expectations. This becomes the foundation of the partnership agreement. It details how the partners handle disputes, how they can leave the business and what to do if one partner dies or is unable to perform necessary duties.
Terms to Include in a Business Partnership Agreement
The partnership agreement should put the interests of the business before the needs of the partners. Although the specific terms you include in the agreement will vary depending on the nature of the business, there are some key items to consider adding:
- Ownership: Think about how you want to divide the ownership of the company. You may divide it equally or give a greater percentage to one owner. What does each partner contribute and receive in exchange for this ownership?
- Distribution of profits and losses: Consider how much and how often each partner gets paid as well as which partner gets paid first when money starts rolling in.
- Powers and responsibility: Evaluate how you want to divide responsibility between the partners. Do you want to give each partner complete control over specific aspects of the business or require agreement between them before making decisions?
- Termination of the agreement: At some point, one partner may want to leave the business. Discuss a buyout option that’s fair for all parties.
- Dispute resolution: How will you handle disagreements between the partners? You may want to let the courts decide or opt for an alternative like mediation or arbitration.
This is by no means a comprehensive list of what should be in your partnership agreement. A lawyer can help you draft an agreement that works best for your situation.
Seeking Legal Advice for Business Partnership Agreements
You may be tempted to write your agreement or buy a template, but the DIY route is not always the best option. The advice of an experienced lawyer is invaluable when creating a business partnership. As an unbiased party who has no vested interest in the outcome of the business, a lawyer can offer advice that’s favorable to everyone. A lawyer also can draft an agreement in clear and complete language that is easier to enforce in court.
Don’t let your business partnership get in the way of a great friendship. Talk to us today about how we can help you draft a partnership agreement or review one that you already have in place.