Forming a new business means taking risks. When that new business is a partnership, those risks may seem greater because your friendship or relationship becomes a factor. Creating a comprehensive partnership agreement helps define roles, responsibilities and expectations for your business.
There are a few key factors to consider as you draft a partnership agreement.
Define the structure of the business
Your partnership agreement should clearly define the company structure, including each of your roles, your financial responsibilities and the percentage of the business you hold. This should also detail how you will distribute financial gains or losses so that you both understand your level of risk or reward.
Establish decision-making guidelines
Every partnership agreement should detail the shared responsibility for making decisions. Each partner’s role should fully address the decisions they can make unilaterally and which decisions require discussion and mutual agreement. This section should also address the dispute resolution procedures in the event that you cannot reach an agreement.
Provide an exit strategy
Each partner should have options for exiting the partnership should they choose to in the future. Your partnership agreement should include the necessary steps for terminating the partnership, including the right of first refusal for the remaining partner to buy their interest in the business.
Partnership agreements provide a governing document for your business operation and may reduce conflict in the workplace between you and your partner. Make sure everyone understands their roles and expectations with a defined and detailed contract to represent your partnership.