If you have ever endured a tedious conversation in which you and another person repeatedly defer to one another about where to go for lunch, you already know the challenges in store if you decide to go into business with a partner. Two minds are not always better than one, especially if they have no framework in which to make vital decisions.
This is why business advocates recommend that entrepreneurs who are seeking to go into a partnership establish a partnership agreement. Hammering out critical issues before they become disagreements has helped many partnerships grow into thriving businesses. If you have questions about drafting such an agreement, you can seek answers by consulting an attorney who has years of experience helping California businesses to succeed.
The ingredients of a successful partnership agreement
Between partners, the ownership of a business may seem cut and dried, especially if you each own an equal share. However, there may be questions to consider that make the issue of ownership more complex; for example:
- Is there a chance you will take on more partners in the future?
- What will happen to the business if one partner decides to leave?
- What process will take place if one partner wants to buy out the other?
- How will you divide the business if you and your partner decide to sell?
- What happens to the business if one partner goes bankrupt or gets a divorce?
- What will be your non-compete policy if one partner decides to leave and start a new business?
The balance of ownership may also tip if one partner contributes more financially to the start-up than the other. The partner with the greater contribution may have more control over the business, or you may decide together to repay the excess contribution to even out your partnership.
Share and share alike
You and your partner will probably want to include in your agreement how you will divide responsibilities based on your strengths and weaknesses. This is one way to protect your business from having one partner who claims to do all the work while the other doesn't fully understand his or her role in the company.
Along with the sharing of responsibilities, you will certainly want your agreement to establish the process for decision-making. This includes not only the daily nuts and bolts of the business, but the decisions that will affect the company well into the future -- and not just deciding where you will go for lunch! Agreeing on a decision-making process ahead of time may save you from reaching an impasse on crucial issues, which may lead to the demise of your partnership.