Deciding to bring a partner on board likely took a lot of consideration while you weighed the pros and cons. But sometimes, it’s what’s required for a business to grow.
If you do decide to partner with someone, it doesn’t matter if it’s a good friend or a family member – you must have a partnership agreement in place.
What should you include in your agreement?
A partnership agreement is a safety net for your business. Even if you have a strong relationship with your partner, here are a few reasons why an agreement is often necessary:
- It outlines each partner’s roles and responsibilities
- An agreement can reduce conflicts by laying down ground rules and setting expectations
- It protects your business if one partner wants to leave
- It can simplify finances
You will want your partnership agreement to include the following:
- The nature of your business and each partner’s role. Will one of you handle finances while the other takes care of production? Specifying each partner’s responsibilities provides clarity.
- What does each partner bring to the table? How much money and time is each one willing to invest?
- Clearly state how profits and losses will be shared among partners.
- How will decisions be made? Do all partners need to agree or just the majority? There can be a plan for resolving disagreements, such as mediation.
- What if the partnership doesn’t work out, or a partner may want to retire? The agreement often needs to outline a plan for partnership dissolution.
Partnership agreements are particularly beneficial when each partner contributes something different, such as finances, time or intellectual property.
Any partnership agreement needs to comply with state and federal regulations. You don’t want to lose your business because you missed a crucial detail. It’s important to work with someone who can create a legally compliant agreement tailored to your needs.
