A partnership agreement is essentially a contract that two business partners use to define their relationship. They’re starting a business together, but they need a framework for what that’s going to look like. Some business owners do skip this step, but that’s a serious risk and could lead to major disputes.
Partnership agreements are going to be unique from one business to the next. But the following are three areas you can start with, which most agreements should address.
Your ownership percentage
First off, you need to know the exact percentage of the business that you own. The company may be split equally between all partners. It may be divided inequally, giving one partner a majority share. It’s important to define this because a majority owner can often make decisions that overrule the others.
Dispute resolution tactics
Next, partners should recognize that disputes may occur in the future. The partnership agreement can set up tactics to resolve those disputes, such as specifying what decisions need to be put to a vote or when the business may have to get the court involved to make a decision.
How to handle finances
Finally, the agreement may address different financial decisions. Do you need to invest your own money in the business? Are you going to be paid a percentage of the earnings or an hourly wage? Who gets to make decisions regarding how the company spends its money?
Getting the right partnership agreement in place is crucial, so be sure you know exactly what legal steps to take as you set up your company.