Many people start businesses with friends or family. No matter how much people trust the person they are going into business with, it is essential to establish a business partnership agreement. This written legal agreement establishes the professional relationship between business partners.
A business partnership agreement is not just about defining a professional relationship. It can also help address any legal issues that can arise. Here are a few matters to address when drafting a partnership agreement:
Who owns the business?
Business partners should consider negotiating how much of the business each partner owns. How much each business partner owns of a business can determine the following:
- Profits: Ownership can define how profits and losses are shared. The partner who owns more of a business is likely to benefit or lose the most from the business.
- Liability: Debts, losses and legal issues may be tied to ownership based on the structure of a business.
- Decision-making: Business partners often use the percentage of ownership to determine how major decisions are made for the business.
While some business partners have equal ownership of a business, that is not always the case. A partner may have more ownership because of their duties or financial contributions.
What are the roles of each partner?
Business partners are often expected to fulfil some kind of role for the success of a business, which can be established in a partnership agreement. Each partner may be given responsibilities and roles that fit their skills or experience. Knowing where a partner stands in a business can help determine who is responsible for various tasks.
How are disputes resolved?
Even the strongest of professional relationships can hit a snag. When business partners cannot resolve a dispute on their own, a partnership agreement can determine how an issue is resolved. This could mean dissolving the business or requiring partners to vote for a decision. Professional legal guidance can help establish strong partnership agreements or settle partnership disputes.
