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3 areas to address in a partnership agreement

On Behalf of | Jan 25, 2024 | Business Contracts |

One of the best ways to avoid disputes with a business partner is to create a partnership agreement. Don’t just set up a handshake deal or go into business together with no official structure. Sit down and iron out this legal agreement first. This way, you are both on the same page and you know what to expect.

Exactly what you need to address is going to be unique, depending on your specific situation. But here are three key areas that you may want to consider.

1. Ownership percentages

To start with, if you’re opening a new business, what are the ownership percentages? Don’t assume that it’s just 50% for each person. Clearly identify ownership percentages in this document so that you know who gets to make crucial decisions and what percentage of the company’s value each person actually owns – and deserves if the company is sold in the future.

2. Pay rates

Next, just discuss how you’re going to be paid. Will you have an hourly rate? Will you both just take a salary? Are you going to be paid based on sales – such as dividing all of the company’s income in half? There are many options, but you both need to agree on how payments should be distributed.

3. Dispute resolution tactics

Finally, even a partnership agreement can’t help can’t prevent all disputes. So it may be wise to include provisions for dispute resolution. How do you come to a solution? Should you work with a third-party mediator? What happens if neither of you can agree? 

Answering some of these questions in advance can make things go more smoothly if this type of situation occurs. This is why it’s so important to know what legal steps to take when starting your business.

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