Starting a small business is an exciting endeavor and one that carries a lot of responsibility and commitment in terms of both time and resources. If you’re considering sharing that load with a partner, there are some important considerations you should plan for at the outset.
When setting up your business as a partnership, a well-documented partnership agreement can help set the course for a successful business and business relationship.
Because conflicts are inevitable in even the best of relationships, you can plan ahead for resolution by spelling out your rights, obligations, and plans for addressing business change and growth through your written partnership agreement.
Below are some important clauses to include in your partnership agreement, though the list is by no means exhaustive. Be sure to consult with a business attorney to address your specific business needs prior to committing to a partnership agreement.
- Capital contributions – How much will each partner contribute to the partnership in cash, property (physical and intellectual property), securities, service, and other assets? You will also want to make clear the percentage of ownership interest of each party in your agreement.
- Distributions – Determine when and how you will allocate and distribute your profits and losses. Perhaps one partner will want to invest more in the business and the other would like to be able to take out money. Or perhaps the business relationship is such that one party is responsible for the day-to-day management of the business while the other contributes primarily as an investor. How will distributions be handled in your business?
- Decision making – Define how you will handle day-to-day management of the business as well as how long-term decisions about the business will be made. Who ultimately gets to decide if consensus cannot be reached? Spell out clearly what each partner’s rights and responsibilities are in terms of the decision-making process.
- Dispute resolution – Arguments arepart of growing a business. Healthy conflict can even be good, but at times tensions can escalate and even lead to lawsuits. Now, when everyone is clear-headed and calm, develop your plan for resolving disputes, which may include requiring mediation and arbitration as a way of keeping the dispute out of court.
- Dissolution – In your agreement, be sure to include what steps will be taken if you want to legally end your partnership. State laws govern business dissolution, so you’ll want to ensure full understanding of what will need to be done in your state to formally end your business partnership.
Protecting your interests and investments with a well-documented partnership agreement is an important step in establishing your business. The above list of important clauses to include in your partnership agreement is by no means complete, but it gives you a starting point for considering all of the unique aspects of your business relationship.
Before entering into a legal agreement, be sure to connect with a business attorney so they can advise you on important steps to take during your business formation. At Silverberg|Brito, PLLC, we can help. Get in touch to learn more.