The Partnership Agreement: Don’t Go Into Business Without One

Two heads are better than one, especially when trying to build a successful small business. That’s why many entrepreneurs team up to launch partnerships.

Partners share both the risks and rewards of the venture, with each participant contributing money, property, labor, connections, and skills—often complementing each others talents and resources. As a result, the whole becomes greater than the sum of its parts.

But the positive dynamics of partnerships also create the potential for problems, which can doom both the business and the personal relationships involved.

The Wall Street Journal’s primer on partnerships stresses the importance of communication among the partners from the outset. Prospective partners should make every effort to get to know each others talents, personality, habits, expectations, and core values. A joint sample project or off-site retreat for prospective partners and their families to get to know each other are potential options for determining whether this multi-dimensional trust is well-founded, or if a different business structure should be considered.

If the partners decide they can work together, the next step is to draft a partnership agreement. This document, which should be prepared with the assistance of an attorney, should detail how future business decisions will be made, including division of profits, resolution of disputes, changes in ownership (e.g., bringing in new partners or buying out current partners), and how to dissolve the partnership. These agreements are not required by law, but the risks of attempting a venture without one far outweigh the upfront development time and effort.

As with a business plan, the partnership agreement is a living document. Situations may arise as the business grows that aren’t covered, forcing the partners to act quickly and maybe not as thoughtfully as they’d like. A partner may also receive an unexpected opportunity or be called away on personal matters, affecting how the business is run. Periodic reviews will help iron out inconsistencies and head off potential areas of conflict.

Websites such as nolo.com and various legal software programs offer partnership agreement templates, but don’t assume that simply answering the questions are enough. Just as every person and every small business is different, every business relationship is unique. And as such, the partnership agreement should be tailored to meet the specific needs of the collaboration at hand,

For more information about partnerships and other ways to structure a small business, contact Raleigh SCORE “Mentors to America’s Small Business.” Raleigh SCORE is a nonprofit organization of more than 50 local volunteers who provide free, confidential business mentoring and training workshops to small business owners. To contact us you may call 919-856-4739, or schedule a face to face appointment by going to our website,     http:// raleigh.score.org.

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