Bringing on a business partner or partners is a big decision. So many times I've seen business partnerships implode, threatening to destroy an entire business. The most critical thing when entering a partnership is proper planning. Here are some basic tips for what to include in a partnership agreement:
7 Things That Should Be In Your Partnership Agreement
Management of the Company
Is the ownership and responsibilities both 50/50? If one of you will be doing the majority of the work you may want to consider an Employment Agreement.
“Tie-Breaking” Voting Provisions If you are 50/50 owners, who holds the Trump card, should a dispute arise? You may consider a provision for the purpose of breaking the tie on certain issues.
Mediation Clause How will you handle large disputes with a partner? Consider a simple mediation clause appointing an individual you trust, such as a business advisor to mediate any dispute between you.
“Golden Rule” Buyout Clause If the two of you are disagreeing more than occasionally, it’s probably a sign that the two of you were never meant to work together in the first place. A “golden rule” buyout clause allows you to make an offer to purchase the other’s interest in the business for a price you both consider fair.
A Death ProvisionWhen a partner dies, their interest in the business doesn’t just disappear. It become an asset of their estate and will pass to his heirs by will or through the probate process. Either way, you end up with the deceased’s relatives as your business partners. Make sure your partnership agreement includes a clause allowing you to buy out your partner’s estate when he dies.
A Disability ProvisionMost people know they need a buyout provision in case a partner dies. It is much more likely, though, that a partner will become disabled at some point. Your partnership agreement should allow you to buy out your disabled partner if that happens. Be sure to define “disability”.
A Divorce ProvisionMake sure any partners spouse signs a consent form agreeing that any shares he or she may receive in a divorce proceeding will be sold under the buyout clause, so the ex-spouse does not become a partner of the business.
This simple agreement including these common provisions can avoid stress, litigation, cost and hassle. Contact us today to have your Partnership Agreement prepared today!
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way.