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Drafting a prenuptial agreement for a business partnership

| Mar 6, 2020 | Uncategorized |

In a lot of ways, a business partnership is similar to a marriage. You incur some financial and legal vulnerability for the actions and decisions of your partner. You need to ensure you are both in agreement on major issues to prevent disputes down the road. Far too many people go into the early stages of a business partnership with rose-colored glasses on, leading to problems later.

A business agreement made with a future partner who will share executive responsibility or provide funding for a business concept can help ensure that you are both on the same page and that you have systems in place to navigate conflict later in your relationship.

Address future changes now, such as expansion and the sale of the business

You should include provisions for both the unmitigated success and potential failure of your business venture. While you, obviously, want the business to succeed, the potential exists for something to go wrong.

Allocating financial benefits for the successful growth of your business is as important as earmarking financial responsibility for debts and other issues in the event of the business’s failure. Additionally, both partners should discuss how they would handle expansion and whether they want to sell the business, its products or its concept to another business if a decent offer arises.

A business partnership agreement can make expectations more transparent

You may hold what you think are common-sense expectations for your business partner, but they may not see them as reasonable or sensible. The same could be true for what they hope for from you in your future business partnership.

By discussing your expectations, roles in the company and contributions to the developing business, you can help ensure that you are both in agreement about who does what and why.

Have an exit clause and a conflict resolution strategy in place

When you start the business, you should agree ahead of time on what you will do if you need to dissolve the business later. Whether one of you will buy out the other or you agree to mutually file for the dissolution of the company and equally split the liabilities and assets, committing your plans to writing will ensure that you won’t waste time or money fighting in the event that the business fails.

Additionally, you may want to have rules and place for navigating conflicts or disagreements about the business or your partnership. Considering all of these elements prior to entering a business partnership can reduce the likelihood of problems as you move forward with your business.