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A partnership agreement can head off conflict

No matter how well you know someone, there will usually be areas in which you will disagree. Even when people come together for like-minded reasons, such as starting a business, there are opportunities for misunderstandings and missed communication that can complicate the working relationship. This is why having a solid contract that covers many contingencies is a wise idea.

If you are planning to establish a partnership with someone, it is possible that you have known this person for several years. You may even be close friends and feel that a contract or partnership agreement is unnecessary. However, many friendships have deteriorated when they go into business without a contract that addresses many of the common causes of disputes between partners.

Essentials in your contract

A partnership can be a complex relationship. Ideally, you and you partner have had many discussions about your goals for the business and the nuts and bolts of operations. However, it is easy to overlook some factors involved in running a business with a partner, and decisions you make in the early days of the company may be forgotten or misremembered without a formal agreement. Some examples of questions to answer in your partnership agreement include the following:

  • How and when will you divide the profits and losses?
  • How will you split the percentage of ownership between you?
  • How much financial investment will each partner make, and will sweat equity count toward a partner’s investment?
  • How will you divide the day-to-day responsibilities in the business?
  • Who will have authority to make decisions, including taking on debt and signing contracts?
  • How long will your partnership last?
  • How will you terminate the partnership?
  • What will happen to the business if one partner dies or wants out?
  • How will you resolve other disputes that arise that are not addressed in your agreement?

These may be only a few concerns your partnership may deal with. Depending on the nature of your business, your partnership agreement may also need to address certain matters such as licensing and elements of risk. In fact, your business likely has many unique elements that require protections within your agreement. Like many who have business matters to resolve, you may wish to seek legal advice from an attorney with experience in partnership matters, creating solid agreements and working to resolve disputes between business partners.