Forming a business as a partnership is exciting. But even if you run the business with a best friend, close family member or trustworthy colleague, you never know when things can go sour. A partnership dispute can cause your business to falter, especially if you do not have a strong agreement in place.
Writing up a partnership agreement can give you the tools necessary to avoid and resolve arguments. Here are the main advantages of putting this document in writing.
Clarify authority
Do you want both partners to have equal authority over major business decisions? Your partnership agreement can lay out details regarding decision-making power, management duties and responsibilities. It is a good idea to set any restrictions or power in writing, so there is no confusion over who can do what.
Avoid confusion about finances
Your agreement can also outline the money entitlements, responsibilities and each partner’s contributions. You can specify the profit division and how much each partner must put towards starting up and maintaining the business. Additionally, you can define who has access and control over the business bank accounts or credit cards.
Determine when and how to bring on a new partner
If your business grows or one of you simply wants to add someone into the mix, the process of taking on a new partner can be confusing and contentious. A partnership agreement can explain how you decide to let someone else join the partnership. For example, the agreement can require a unanimous vote for such a decision.
Define an exit plan
Sometimes, partners do not remain in the business forever. Your agreement can spell out the circumstances in which a partner can leave or face expulsion from the business. Additionally, you can decide how to dissolve the company if both partners want to close shop.
