When forming a business partnership, all the interested parties need to make sure they are on the same page – and that means making a formal agreement.
There are a few key additions in a business partnership agreement that can determine how a business is managed, the future of a business and what should happen if a partnership ends.
When talking about a business partnership agreement, ask the following questions:
1. Who will make decisions for the business?
A business partnership agreement should clearly outline who will make the day-to-day decisions for the business. This does not necessarily mean that one partner is entirely in charge, however. Some decisions may be made by one partner, while other decisions may require a unanimous vote from all partners. Partners also need to discuss what happens if a unanimous vote cannot be made for an important business decision.
2. How will profits be divided?
Business partners naturally expect to make some kind of profit from their endeavors. A business partnership agreement should outline how those business profits will be distributed between each partner. Furthermore, an agreement should also outline how losses will be distributed. That helps set everybody’s expectations.
3. What responsibilities will each partner have?
A partnership agreement should outline each party’s responsibilities. Who will be in charge of hiring? Who will handle product development? Who will be in charge of advertising decisions? Partners may be given different roles depending on their skills and involvement, including financial management, employee management and networking.
4. How will any disputes be resolved?
Business partners are bound to occasionally disagree, so it is best to plan for that. A partnership agreement can outline how a future dispute is resolved. For example, partners may need to reach a majority vote before a major decision is made.
5. Is there an exit strategy?
No partnership lasts forever. People retire, decide to take different opportunities or pass way. A business partnership agreement should outline what happens when that time comes. For example, the agreement may split the value of the business evenly between parties or allow one party to buy out the other owners.
Professional legal guidance can help draft a business partnership agreement.
