Few businesses can expand with only one owner. Businesses looking to grow tend to have partnerships (two owners or more).
Nonetheless, the ownership share of partners, and their responsibilities, can differ. It is essential to outline the distinctions between partners in a partnership agreement. This is a legally binding contract that outlines the roles and responsibilities of each party.
Below are some key points to remember.
Daily responsibilities
Each partner should have a defined role within the company. The partnership agreement should outline who is responsible for daily operations, decision-making and financial management. Clear role descriptions help prevent disputes and ensure efficiency.
Financial considerations
Partnerships involve shared financial responsibilities. The agreement should specify how profits and losses will be divided. It should also outline each partner’s initial investment and whether additional contributions will be required.
Decision-making and dispute resolution
Partners may not always agree. A strong partnership agreement includes decision-making processes and a method for resolving disputes. This can involve mediation, arbitration or a voting system. Having these guidelines in place reduces the risk of prolonged conflicts.
Future-proofing the business
A partnership may not last forever. The agreement should detail what happens if a partner wants to leave or the business dissolves. It should cover buyout terms, succession planning and asset distribution.
Even if you trust your partner completely, all business relationships must be backed up by contracts. A partnership agreement can be the difference between a startup’s failure or success. For established companies, a partnership agreement can prevent lengthy litigation that hurts the bottom line. For more information on business partnerships, it may help to seek legal guidance.