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Getting a partnership agreement right

On Behalf of | Oct 9, 2019 | Business Formation |

Often risky and challenging, starting a business can be among life’s most exhilarating adventures. When the venture is a good partnership, its owners get to go through the experience together.

More importantly, they share their resources, experiences and skill sets, potentially making for a stronger business, and they also share legal and financial liabilities. According to Forbes, a strong partnership agreement can be critically important for a successful, harmonious business.

Making decisions big and small

Partners who already agree on everything may not find experience to be an asset. Count on disagreements and keep them under control with the right decision structure. Certain decisions may belong to any partner. Other decisions could be preassigned to certain individuals, or need a majority or unanimous vote of all partners to move forward.

Dispute resolution

Even a well-drafted decision structure can break down. Good partnership agreements usually include a detailed process for resolving disagreements without taking lawsuits into the public courts. Private mediation is a cornerstone of many such plans.

Paying and getting paid

Experts urge explicitly defining the assets expected from each partner now and into the future, including finances, effort, customers, other contacts and other business assets (supplies, equipment, real estate, etc.). Profits matter too, of course, and so does explicitly detailing who gets paid, how much, in what priority and in what form (equity, cash, etc.).

New owners, dissolution, and other big changes

Business ventures are about the future, so they’re full of surprises. People die, retire or their health may affect their abilities. Some may leave to work for a competitor or face prison sentences.

A partnership agreement should address or accommodate as many such contingencies as possible. A sale or buyout of the company, for example, means pricing the company and distributing proceeds among partners. If some partners want to buy the company from the rest, or it’s simply time to close shop, what then?

Business formation law is regulated by state law, so look for a local law firm with extensive business law experience to help create and maintain the agreements.

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