July 7, 2017
When you bring a business partner on board, it could feel like you are trusting them with your baby. While having a partner can strengthen the foundation and capabilities of your business, it also means giving up some of the total control you’ve been used to as a solopreneur.
To mitigate your fears about having a partner on board, it’s best to draw up a partnership agreement to set future expectations and contingency plans.
The Basics of a Partnership Agreement
Most partnership agreements essentially outline the terms for all likely scenarios you may encounter doing business together. Basic terms include the ownership percentage and distribution of profits, the length of the partnership (is it limited or indefinite), duties and expectations of each partner, how to end a partnership and buy outs.
The agreement should spell out the legal liabilities for each partner, detail new ways the partnership can change in the future and acknowledge issues such as intellectual property and non-compete agreements that would protect your company secrets should your partner ever leave and work for competition.
It’s also good to insert plans on how to deal with conflicts whether it be through mediation or binding arbitration, and what each partner can do with “their half” of the company. A thorough agreement will specify, for example, whether a partner can sell their part of the business with or without their partner’s consent.
If you want to add new people to the partnership, there should be a provision for that as well. Also, if one partner becomes disabled or otherwise unable to continue his duties, there should be a provision in place to fairly but efficiently remove him from the agreement that is detailed in the partnership.
Above all, a partnership agreement should be what you and your partner consider a reasonable agreement to divide the responsibilities and reap the benefits of running your business.
Getting an Agreement in Place
If you’re looking to put a partnership in place at your business, you should ensure that any partnership agreement is drafted and reviewed by both parties before committing to anything. Your first version may not necessarily fit your potential partner’s vision of their role in the company, and don’t be completely surprised if you have to negotiate some aspects of the agreement.
Bring a lawyer into the process as soon as possible. Ideally, your attorney should draft a partnership agreement for you based on your state’s laws and your preferences for how to run your business. The attorney can help you navigate the difference the type of partnerships, develop a legally sound buy-out agreement, and help you develop a non-compete, non-disclosure or non-solicit agreement depending on what information your partner will have and the nature of your industry.
Although there are basic partnership agreement online it won’t be enough to anticipate any particularly complex or large-scale financial issues. It’s best to have a lawyer to help you gain a better understanding of the legal possibilities of your business than you will, so leaving it to an online template might lead you to make rookie mistakes.
A thorough partnership agreement can protect both you and any potential partners in your new endeavor. Take this legal necessity seriously, it will protect you down the road and give you a legal defense for maintaining ownership and direction of your business.
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