Like any long-term relationship, business partners must enter their agreement with ground rules, planning, and clear expectations. If they don’t, the unplanned unsaid things lead to resentment, anger, and frustration – not to mention the toll it takes on the business venture. Once you’ve decided to go into business (and read the previous three blog posts here), you’ll need to get it all in writing.
Set up a partnership agreement with help from a lawyer and an accountant. You should do this no matter who your partner is. A strong personal connection will not necessarily help you overcome any obstacles along the way. It may sound unnecessary or cold, but trust us – get it in writing.
Your partnership agreement should address three critical areas: compensation, exit clauses, and roles and responsibilities. This includes who owns what percentage of the business, who is investing what, where the money is coming from, and how and when partners will be paid.
Generally, partners set up equal ownership with each contributing 50% of the initial investment. That’s merely a guideline – your attorney can help you make this decision. One of you might contribute more money if the other brings expertise or business contacts to the table.
Your agreement should cover how you plan to exit the business, including clauses that spell out cases in which one partner is obliged to buy out the other’s interest — say, if one of you wants to quit the business. You might include a statement that the other partner must buy him or her out for a pre-negotiated percentage of the business’s value. You may wish to liquidate and divide all assets. The agreement should designate who will appraise the business and the methodology used.
Other items to include are expectations for how the business will operate and clearly assigned roles and responsibilities of each partner based on their skills and desires. Curious about starting a business, get a free consultation to get matched to the right one.