So you’re going into business with your best friend, and you don’t think you need to draw up any legal paperwork? Well, think again. No matter who you decide to go into business with, there are certain legal issues that you need to address beforehand to avoid major problems down the road. As such, you need to consider a partnership agreement.
A partnership agreement will outline key issues such as decision making, money or what happens when one or both of you decide to leave the business. You can buy a partnership agreement template online, hire a lawyer to draft it or draft it yourself (although not usually recommended). While each partnership agreement will be different based on the needs of the business and what type of business you have, it’s best to at least include the following information in your agreement.
Contributions to the Business
It’s vital that you and your partner work out and record who will be contributing certain assets and cash, services or property to the business before you open. You’ll also want to outline what ownership percentage each business partner has. Disagreements over important business aspects such as these can lead to major legal issues down the road.
Allocation of Funds
Another important piece of the legal agreement puzzle will be how you’ll allocate funds, including both profits and losses. You and your partner will have many different ideas on how money should be handled, along with different financial needs, so this is an area you need to pay close attention to.
Authority of Each Partner
Another important piece of the partnership agreement puzzle is outlining which areas of authority will be divided between the partners. Things to consider here include who will keep the books, manage the employees, deal with customers and handle suppliers. There may be certain areas that each partner is stronger in, so it’s important to outline those details in your legal agreement.
There’s no set way to divvy up the decision making between partners, but you’ll avoid major disputes if you work it out beforehand. You’ll need to spell out who will make major decisions, and if you’ll want to spell out what constitutes major or minor decisions.
You’ll want to address certain issues, such as who supervises employees, negotiates with suppliers, deals with customers and keeps the books. Think through every aspect of management needs and ensure you have all the basics covered.
Withdrawal of Partner
You should outline a reasonable buyout plan in the event you or your partner wishes to leave the business. Also, all partners should have some type of estate plan implemented in order to leave specific instructions as to how the death of one partner will affect the business structure.
If you and your partner cannot resolve an issue on your own, you’ll need to outline the legal steps you plan to take. Do you go to some type of arbitration or do you head straight to court? It will be beneficial to all involved if your agreement provides for a variety of alternative dispute resolution tactics.
While it’s always best to retain a professional, who can help you draw up a legal partnership agreement that is specific to your business needs, you can also purchase a legal partnership template online.