A business partnership agreement is often overlooked when starting a business, because like a young couple deciding to get married, everyone is excited and they don’t want to upset the apple cart with formalities of things they think will never happen.
Well, unfortunately breakups do happen, in business just as in marriage, so when you hear this…
Dearly beloved… We’re gathered here today…
Before You Say I Do: Get It in Writing!
A business partnership is a lot like a marriage and the break up, should it come to that, can be just as devastating as a divorce.
Whether you are partners outside or inside of marriage, anytime you start a business with someone else, it’s imperative to get all the details in writing, and those details that are there for both of your protection can be defined prior to opening the doors with a business partnership agreement. It’s very possible that down the road there will come a time when the two (or more) of you don’t see eye to eye or circumstances change. Any nagging problem can be the start of much more trouble to come.
According to the National Federation of Independent Business, business partnerships between husband and wife account for around one million businesses. I didn’t find a figure on the total number of business partnerships, but they are very common. Today’s complex business environment has made it increasingly difficult to achieve great success by going it alone.
The problem is it can be a challenge t9 find the right partner(s). However, once you do, it’s time to get down to the financial, legal and working details of the partnership.
That’s why I say, get it in writing.
A business partnership agreement is like a prenuptial. Be precise, clear, and as detailed as possible in situational analysis. When money and power is at stake, set in concrete who gets what, who controls what, who does what, who makes the decisions, and what happens, when and if, one or the other wants to part ways.
Even a successful business can be brought to its knees when partners can’t work together any longer. Often times, court is required to settle things. Once you go that far, your business partnership agreement better be solid. In fact, it would definitely benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.
In addition, a buy-sell agreement, which is a binding contract between business owners, should be negotiated beforehand.
A buy-sell agreement covers more than just a parting of ways between business partners. It details how you agree to handle the sale or buyback of an ownership interest when circumstances change. This includes outside offers to buy the business, a divorce settlement, personal bankruptcy, and injury, incapacity or death, among other things.
One common way to end a partnership is for one to buy out the other in cash or on terms. You should set up a reasonable buyout scheme in your business partnership agreement and have a qualified third party, such as an accountant; put a current value on the business when the time comes.
My recommendation is to hire an attorney to guide you through the process of coming to terms before the partnership is solidified. My advice would be the same in the event of dissolution. However, there are ready-made forms that you can use to help you through the process of forming or dissolving a partnership yourself. One such source for DIYers is Nolo.com.
There are also many popular services online that can assist you in setting up a business partnership agreement on just about any budget. LegalZoom is one of the more popular ones and their customer service reviews are really good.
Many of us have had, or heard about, business partnerships that have gone awry. Preparedness is imperative.
Are you considering a business partnership? Are you in one? Do you have other recommendations?