It is crucial to have a solid partnership agreement that defines your working relationship if you are thinking of partnering up with a friend or relative to start a new business venture. Otherwise, you risk running into trouble with not just the partnership venture but also the existing relations with your partner.
Conflict and disagreements are quite common among business partners, which explains the need for a comprehensive and legally binding agreement to help resolve any issues that could potentially affect the partnership.
Reasons to have a written partnership agreement
There are several reasons why you need a partnership agreement. First, you will have more control over the business. Without a partnership agreement, your venture will be subject to state laws, and you may not have much control over your business. A partnership agreement can help you vary the rules that govern the venture and tailor them to your needs.
A partnership agreement will also help you agree on everything beforehand. How will the profits and losses be shared? How can a partner be removed from the partnership? What is the role of each partner? Such issues may initially seem minor, but they are behind most partner fallouts.
You can protect the business interests with a well-drafted partnership agreement. The future of the partnership will be more secure if there are guidelines on resolving partner disputes or what happens when a partner dies, is incapacitated or declares bankruptcy.
Do not leave anything out
A partnership agreement is only as good as its clauses. You do not want to end up with a document that does not provide a solution when things go south. Therefore, it is best to seek professional assistance when creating your partnership agreement to ensure there are no loose ends in what is, essentially, the constitution of your business.