3 things you need to address in your partnership agreement
You might prefer to make partnership agreements with a handshake, but you need something more reliable. Business partnerships are not immune to misunderstandings and disagreements. You will have to deal with these people unless you dissolve the partnership. This is why you should write a clear partnership agreement as you start your business to save complications down the road.
Even if your potential partner is a great friend who has all your trust, that does not mean you will not disagree on something important about the business in the future. Here is what your partnership agreement should address.
1. Financial contributions
Money is a big deal, especially if either of you is putting in a significant amount of startup capital. Do not rely on your memory to determine the responsibility of contributions. You should write down all details surrounding contributions from each partner to prevent later disagreement.
2. Business disputes
You might assume you and your trustworthy partner will be willing to work everything out whenever an issue comes up. However, things do not always work out that way. Consider including a clause outlining how to resolve disputes. You might want to include language to entrust dispute resolution to your advisory board or a mediator.
3. Exit strategy
Even if you have the best business idea in the world, things might go south unexpectedly. You should always have an exit plan in place. You and your partners should agree on how to sell the business if needed. This includes deciding what to do about profit sharing and business valuation.
Starting a business is exciting. You should feel happy about this new venture. However, do not let the giddiness get the best of you. Do not ignore how crucial it is to craft certain documents now to avoid costly court battles later. You should include these three provisions in your partnership agreement to ensure things go as smoothly as possible. Read this Forbes article on partnerships for more guidance.