When starting a new business with another person, or even just when formalizing an existing business with them, you want to make sure everything is handled properly. Creating a good partnership agreement will help ensure that the business is able to run smoothly and that any potential conflicts can be resolved as easily as possible. When writing up a partnership agreement, you need to make sure it covers what to do in a variety of different scenarios, including the following key examples.
1. Division of Labor
In the early stages of running a business, the owners typically work hard to get everything done without giving much thought about who is doing what. As a business grows and matures, however, each owner will likely need to focus on specific things that need to get done. Talking about how labor will be split up ahead of time will help ensure that there aren’t any disputes going forward.
2. How Profits Will Be Used
If the company is making money, it is essential to know how the profits will be used. One partner may want to take their portion of the profits out and use it on themselves while the other wants to reinvest back into the business. Having a written agreement about how profits are used will help avoid any fights or other problems that could come as the business becomes more successful.
3. Ownership of the Company
This one may seem obvious, but it is far too often overlooked. Will the company be owned evenly by each partner, or will it be divided in some other way? There are many good options available, and as long as everyone is on the same page, there are many ownership configurations that can work.
4. How Decisions Are Made
At some point in the life of the business, the partners are going to disagree on some important decision. When this happens, it is critical that there is no dispute as to how the final decision is made. Some partners will identify which areas of the business are run by which partner while others will specify that seeking mediation is the way to go. Whatever you decide, make sure it is reflected in the terms of your partnership agreement.
5. What Happens Upon the Death of a Partner
While difficult to think about, you need to know what will happen to the business if one of the partners passes away. Will their portion of the company go to their spouse? To their children? To the other surviving owners? Covering this in the partnership agreement will help to minimize the risk to the company should the unthinkable happen.
Every Business is Unique
While these are five different scenarios that need to be covered by a partnership agreement, they are far from the only ones that may arise or be important to your business. Getting all the partners together with an attorney to discuss what exactly needs to be in your agreement will help to ensure it covers all key points. Please contact us at 844-835-2993 to schedule a consultation today.
Carla D. Aikens, P.L.C.
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