A partnership can make business ownership more accessible. Individuals who lack the hands-on experience, adequate capital or the time required to fully commit themselves to developing a business can improve their circumstances with the help of another professional.
Business partners work cooperatively to create a successful organization. They share in the benefits of establishing a viable company. Unfortunately, conflict between business partners can rapidly derail what might otherwise be a successful business.
Those intending to work with a partner may benefit from creating a very thorough, customized partnership agreement. What matters do aspiring business partners usually need to address to minimize the possibility of major conflicts in the future?
1. Contributions and compensation
Partnership agreements generally need to include a very thorough explanation of what each partner may provide for the company. They also generally need to detail the compensation that partners expect to receive.
Partners may agree to scale up their pay as the company eventually becomes successful. Clarifying what each partner should provide and may receive can reduce the risk of conflict caused by unmet expectations.
2. Long-term plans for the company
Is the goal to create a viable business that passes to a new generation of leaders? Do the partners aspire to create a thriving business and sell it when they reach retirement age?
Partners may need to discuss not just the short-term plans for establishing the organization but also a long-term vision for the company. Creating five-, 10- and 20-year plans for the business can help ensure that partners share priorities and values.
3. Buyout terms
Integrating a buy-sell agreement into a partnership contract is usually a smart move. Even if partners intend to work for the company until they retire, unexpected changes could alter either partner’s plans for the future.
Divorce, health challenges or the death of a loved one could all force a business partner to drastically change their lifestyle and priorities. Having a plan in place to allow one partner to buy out the other can prevent such discussions from damaging the relationship between the partners or the company itself.
Working with a professional to create a custom partnership agreement can lead to a more amicable and sustainable business undertaking. Entrepreneurs planning to create new companies may benefit from discussing operational matters at length before actually starting the business.
