Search
Close this search box.
contract

Partnership Businesses: Understanding Trusts and Written Agreements

Partnership businesses bring together the best of the knowledge, skills, and creativity that two or more people have and combine them toward directing the company into profitable and successful avenues. It can only work if you choose someone who has different capabilities than you but someone you have great admiration and respect for. Trusting your partner to put the business first is necessary for the peace of mind you need to concentrate on running the company.

This respect and trust need to be encapsulated in writing as well. A detailed and particular binding agreement must be signed to protect all members and the business adequately. It ensures that no matter what happens, every partner is treated fairly. This is why lawyers are essential during the negotiation phase.

If your current company lawyer is not experienced enough in this field, it is best to hire outside. In the same way that a divorce lawyer would be better suited to ending a marriage than a family lawyer, a specialist in the field can help form an agreement that leaves all parties satisfied. An experienced commercial lawyer will offer insight and informed suggestions that can significantly benefit the process.

The strength of the agreement is what will help the businesses to function smoothly. Diverse skills among the partners will mean different ways of running operations. Figuring out a way to combine or separate responsibilities will help manage better the differing aspects of running a business.

Responsibilities and Financial Stake

Often, the amount of responsibility a partner can take in the business is tied to their financial stake in it. You and your potential partners need to openly discuss how much of an investment they need to make to be considered a partner. This must include the amount of their time, in-person effort, and material contributions that they will be required to offer.

Profit Distribution

This is a critical point in establishing a partnership. People will join a business that they believe will generate a good income. You and your partners need to be very clear on exactly how you will split business profits. The agreement needs to reflect the exact order in which profits will be distributed as well.

Which partner gets paid first? Is their profit portion different from their salary? These are essential questions to answer before actual money comes into the matter, as financial disputes are often the easiest way to damage a profitable partnership.

Establish Ownership

entrepreneur

Someone can be a business partner but not have an equal say in the ownership of the business. But they still have a strong claim that can disrupt decisions to sell, upgrade, or add additional partners. Your agreement must reflect the exact amount of ownership that each partner has about the company.

Do they have to agree unanimously with you to sell the business or acquire new partners? Can one partner buy out another partner, and how much do the other partners have in this decision? What happens to a partner’s stake in the company in the event of death?

These questions must be anticipated and answered to keep the company stable and steady no matter what may happen behind the scenes.

Making Decisions and Deciding Votes

Part of working with someone who has different abilities and management styles to your own lies in accepting that conflicts will come. It is unavoidable that two people can manage a business without clashing at some point. Thus, it is important to assign decision-making abilities to different business-related processes to minimize these clashes as possible.

How do the partners make a deciding vote? Will voting for decisions be anonymous, or does each party have to defend their decision? How much say does each partner get in day-to-day management versus in long-term decisions making?

Setting up a structure or template to decide on essential points will help make the business easier for everyone to manage and reduce unnecessary conflict from different decision-making styles.

The last feature of any agreement to join together people into a partnership should outline a clear pathway to dissolving the partnership if the need ever arises. People are different, companies change, and opportunities for individual change and growth will come. Having a process to end your partnership legally will allow everyone to feel that they have choices and options.

Trying to lock someone into a permanent partnership shows a lack of forward-thinking on your part. It is not just your partner who may need to leave; you may find yourself needing to leave the partnership for a variety of reasons as well. Allowing a guided process for dissolution gives everyone peace of mind as it can have contingencies in place to protect the business you will all have to work so hard to build up.

It may take a lot of time and intense effort to set up a good working partnership. But it is often well worth the effort as the business will benefit a great deal from having experienced and dedicated leaders.

About The Author

Scroll to Top