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What should go into an agreement with your business partners?

You and your business partners may have a perfect relationship.

Why not? You share a common goal, a vision and the drive to make it all happen.

However, business relationships are ultimately more intense and less stable than marriages. Around 80 percent of business partners eventually break up, following the likes of Mark Zuckerberg and his one-time partner Eduardo Saverin into history.

In order to protect your financial future, it's important that you do what every smart entrepreneur should do: Get your agreement with your business partners in writing.

What should an agreement between partners entail?

Consider addressing the following items in your formal agreement:

1. What type of company are you founding? Is it a partnership, a limited liability company or a corporation of some sort? The tax implications are important, so consider your options carefully.

2. Who owns what part of the new business? A 50-50 split can be problematic because that leaves no one with the deciding vote if there's a disagreement. However, deciding who gets the majority share can be difficult. Do you decide based on investment and risk? Or does the larger share go to the person putting in all the vision and energy?

3. How, exactly, are decisions going to be handled for the business? Who has control over what? When does an issue go to a vote?

4. Do partners have to continue to participate in the business in order for their shares to vest? Can a partner keep his or her shares and retire into "silent" status?

5. What are each partner's responsibilities toward the business? What happens when someone fails to live up to those responsibilities?

6. Are there morality clauses in place? These have taken on increasing importance in a society where a key member's after-hours actions can end up becoming a public nightmare very quickly.

7. What happens if another company offers to purchase the business? It isn't unusual for bigger companies to buy out smaller ones -- but is everyone in agreement of what it would take to sell?

There may be other concepts that you wish to write into the formation papers for your business start-up. Whatever they are, addressing all the issues early and openly can prevent major complications down the road.

Source: allBusiness, "10 Big Legal Mistakes Made by Start-Ups," Richard Harroch and Richard N. Frasch, accessed March 06, 2018

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