A business partnership is one of the most influential relationships a person can establish. A partner contributes money and talent toward an entrepreneurial endeavor. Their work and ongoing financial support can be crucial to the company’s long-term success.
Those beginning a partnership are often in a state of limerence in which their excitement might overshadow their rational decision-making. They may rush forward with the creation of a company without properly protecting themselves. However, negotiating a thorough partnership agreement is crucial for the protection of aspiring business owners.
What should partnership agreements typically include?
Expectations for both partners
Clarifying what each partner should do for the company and what they should receive in return is of the utmost importance. From the financial contributions of each partner to what specific business functions they intend to perform, there are many important expectations to clarify in a partnership contract. Doing so helps prevent disputes related to unspoken expectations that lead to frustration and resentment later.
Protections for company secrets
Trade secrets ranging from formulas to vendor lists can be very valuable company resources. Partners may need to integrate restrictive covenants into their agreements to prevent any misuse of key company information should one partner exit the business or attempt to start a different company as a side project. Non-disclosure agreements and non-solicitation agreements can help limit the organization’s exposure should the partnership eventually fall apart.
Rules for conflict and buyouts
There are a host of scenarios in which partners may find themselves disagreeing with one another. There is also a nearly-endless list of reasons why one partner might want to acquire the other’s interest in the company. Establishing clear rules for how the partners should resolve conflicts is of the utmost importance.
So is the establishment of clear guidelines for how partners may handle a buyout scenario. The contract can also include other circumstances in which the partnership may end, including the incapacitation or death of either partner. They can clarify whether one partner can assign their ownership interest to beneficiaries or heirs and who can take over their role at the company in an emergency.
Taking the time to negotiate a thorough and clear partnership agreement can take a lot of the risk out of doing business closely with another person.