It’s wise to make a partnership agreement if you’re going to start a business with someone else. Even if the two of you are on the same page and you are good friends – or even family members – it pays to have this paperwork in place. It officially defines your relationship, establishes the business and provides clear definitions on many fronts where disputes are otherwise likely.
But what exactly should you include in this partnership agreement? It may be a bit different depending on your unique situation and the type of business you’re starting, but here are a few examples of things you likely need to include.
Monetary considerations
First, if you and the business partner are going to be investing in the company, make a note of the financial obligations. You also want to consider how you’re going to be paid or how distributions will be made. Will you divide the revenue, take a salary, draw an hourly wage or something else entirely?
Ownership percentages
Next, you never want to make any assumptions about ownership percentages. They should be clearly defined in the agreement, even if each of you simply own 50% of the company. This ownership percentage is very important as the business grows or if the two of you decide to sell.
Duties and roles
It’s also wise to use the partnership agreement to define the different roles you’ll have at the company. This way, you both know what’s expected and who gets to make specific decisions. For instance, one of you may make more creative decisions about product development, while the other is more in charge of financial decisions.
Drafting a partnership agreement is just one step to take as you set up your company. Be sure you understand the legal process.