6 Steps To protect Yourself In Any Business Partnership

6 Steps To protect Yourself In Any Business Partnership

6 Steps To protect Yourself In Any Business Partnership

A partnership agreement should cover these 8 issue areas in order to avoid a failed partnership.
Business partnerships are not unlike marriages.

Just like marriage, not all business partnerships work out. In fact, some even end in the equivalent of catastrophic divorce. For this reason, it’s crucial that you sign a partnership agreement – yes, the business world’s equivalent of a prenuptial agreement.

A warning up front: discussing sensitive topics with your partner is likely to be uncomfortable at first. However, this largely innocuous document will benefit both parties tremendously in the long-run – especially should the partnership fall apart. Like a prenuptial agreement, a partnership agreement isn’t betting on a failure; it’s simply a precaution.

While partnership agreements vary in their contents, there are a few essentials that every partnership agreement should address:

#1 Ownership
This is the most important consideration in any partnership agreement: who owns the company? Are you equal partners? Is one partner taking on a larger chunk? The moment you enter into a partnership, clarify your ownership roles.

#2 Commitment
You and your partner should also discuss your financial and time commitments. Will you both contribute the same amount of money? And at the same time? Ensure each of you understands how much money you are expected to give, and under what circumstances. Moreoever, a young business requires not only a lot of money, but also plenty of time. How much time will each of you give to the company? These are important considerations to be made in any partnership agreement.

#3 Expenses
What’s your policy on expenses? How much entertaining can you do? Who writes the reimbursement checks? These are important questions to discuss, as you don’t want one partner spending more than the other believes is necessary on wining and dining investors.

#4 Voting Rights
If one person has a greater share in the company, is he solely responsible for making the rules? If you’re 50-50 and don’t agree, who/what is the tie-breaker? Do all decisions need to be unanimous? Or just some of them? It is in both of your best interest to avoid any future intransigence by ironing out these details up front.

#5 Vesting
What happens if one partner decides to leave the company? What happens to his or her share of equity? Make sure you have a vesting schedule in place that outlines how and when equity is distributed in the event of one partner departing.

#6 Buyout
When, how, and to whom can you sell your interest in the company? How will the value of the sale be calculated? This is an important issue that needs should be discussed and planned for in advance.
The big picture is this: If you plan on starting a business partnership, get these issues and any others that are relevant to you and your partner down on paper at the outset.

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Business & Marketing Tips: 6 Steps To protect Yourself In Any Business Partnership
6 Steps To protect Yourself In Any Business Partnership
6 Steps To protect Yourself In Any Business Partnership
Business & Marketing Tips
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