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The essentials of a business partnership agreement

When a business dispute arises between partners, it’s often the result of insufficient discussion from the onset. Before you go into business with someone, it’s important to get on the same page about all of the implications of the business relationship – now and in the future. You probably won’t go into business with someone expecting trouble, but anticipating any hypothetical hurdles can be a valuable step in avoiding conflict further down the line.

Just as a prenuptial agreement helps couples to work through differences in their married relationship, drafting a robust partnership agreement makes solid business sense. In today’s post, we examine some key elements such an agreement should include:

  • What percentage of the business will each party own? Will this proportion be based on financial investment, active participation in growing the company or other factors?
  • How will profit allocation work among partners? Will profit be divided according to the percentage of ownership?
  • Who will be involved in business decisions, and what will be the method of reaching consensus?
  • In the event that disputes arise, how will you and your partner resolve them?
  • If you and your partner decide to terminate the business relationship, what are the financial consequences?
  • What happens to a partner’s holdings in the event of their death?
  • What will be the frequency and method of payment to each partner?
  • If one partner divorces, will the ex-spouse be entitled to any portion of the company?

Even if you’re confident that your and your partner’s joint venture will be a success, it’s unreasonable to assume that any two people will always share the same vision. Developing a thoughtfully conceived game plan from the start is key to preventing conflict in your business.