When planning to start a business in a partnership with another person, it is important to meet with an experienced attorney to draw up a written partnership agreement. This step is vital no matter who your business partner is. Strong friendships or personal connections are not enough to overcome the many obstacles that businesses face. Make sure that you are protected and get a written agreement.
The written agreement will help to clarify three key areas: compensation, exit clauses, and roles and responsibilities. It is vital to note business ownership percentages, how much each partner is investing, and how and when each partner will be paid.
In a typical partnership agreement, the partners have equal ownership and each contribute 50% of the initial investment, but those terms can vary and it is important to note them in the agreement. Also, it is important to make sure that the agreement adjusts with the growth of the business. For example, setting a target revenue point at which the partners will begin to receive or increase compensation, or how to handle bringing on additional people.
Exiting the Business
It is important that in the excitement of starting a new business, to remember that there is the possibility of a partner leaving. It is vital that the business agreement covers how partners eventually exit the business. Will one partner be obliged to buy out the other’s interest if he or she chooses to quit? An agreement can determine at what percentage of the business’s value it will cost to buy out the exiting partner’s interest. A written agreement can also help to predetermine how to assess the total value of the business if both partners choose to exit and liquidate the assets.
The true value of a written agreement for a business partnership is that it protects both partners and helps to outline the expectations for the operations of the business. With all roles and responsibilities clearly defined, both partners can focus on growing the business rather than attempt to make important partnership decisions.
Alexander Law Firm has experienced business lawyers who have worked with numerous partnerships. Contact us today and let us use our knowledge and years of experience to get your business partnership of to the best possible start.