There is an old adage that says that “two heads are better than one,” and in the world of business, this can certainly be true. After all, it can be difficult to find the motivation when you are a solo operator, as it may be hard to bounce back after a disappointment.
In each case, it might be beneficial to have somebody by your side who is equally as motivated to ensure that the business works and who may have a different way of fighting a specific challenge. No wonder, therefore, that so many people decide to enter into a partnership agreement with someone else, to give them an advantage in their market. Yet it is essential to formalise this type of agreement, to make sure that everybody knows where they are and to avoid any confusion down the road.
If you are thinking about taking this type of approach, what do you need to include within your partnership contract?
Some people may choose to use a partnership agreement template to help them draft their initial document, and while this may be a good place to start, it’s vital to ensure that the right areas are covered, and nothing is left out.
To begin with, the contract should include how each partner will contribute to the operation and what should happen if there is any disagreement. Ideally, they would be able to talk this through between them in such an event, but if there is an impasse, should they go for mediation or arbitration?
They will need to clearly iterate how much each person is contributing to the business in terms of cash or other significant input. This will help them to understand how much each person has at stake, how much they will put into the business, and how much they may be entitled to get in return. The contribution may not be merely financially either, as they may bring customers into the business, have certain assets that are now in play or may contribute a lot more in terms of their available time.
The agreement will also need to cover a worst-case scenario and, specifically, what will happen if the partnership were to dissolve. If the company is to survive after this type of dissolution, then the particular arrangements need to be covered in this clause.
If one or other of the partners has contributed a certain financial amount to help with expansion and this is treated as a loan, then they may be entitled to get an amount of interest on the amount outstanding. If it will take time for this cash to be freed up and returned following any partnership dissolution, this should be covered here as well.
When the partnership is dissolved, the individual party is free to go his or her away, but they must not be allowed to compete with the business after their departure. The agreement should, therefore, include a clause that covers non-competition in this respect and that also covers non-disclosure. This will ensure that they do not diverge any confidential information that may be harmful to the ongoing business.
There is a lot at stake here, and it’s crucial to ensure that a partnership agreement is correctly structured. Talk with Cigno Business to help you get this right.