5 Top tips for a good partnership agreement

Entering into a business partnership with another person can be an exciting prospect. Like any relationship, however, there are many opportunities for misunderstanding and disagreement. Having a good partnership agreement in place between you and your partner(s) helps form a partnership that starts and stays strong. Here are 5 top tips for a good partnership agreement.

This is not an exhaustive list. Because partnership is a complex issue, we recommend contacting an attorney for assistance in drafting this type of agreement.

Get your partnership agreement in writing

This really is a no brainer. Memory is unreliable. Get that contract in writing. You then have a record of your partnership agreement that you can refer to at any time. This record protects both you and your partner(s) and gives you clarity in how best to operate in the context of your partnership.

Define your job roles

Define in the partnership agreement how the work will be divided between partners. Set out who is responsible for making which decisions. If you and your partner(s) have clarity regarding your respective job descriptions, this will help to avoid any false expectations that one partner might have in terms of another partner’s role.

Define the financial contribution of each partner

The topic of finances has the ability to cause conflict within even the most trusting relationships. By defining your financial contributions in your partnership agreement, you have a record in the case of later disagreement. Identify the sources of capital and the respective contributions required from each partner. If one partner provides more capital and the other provides more labour, define how the relationship will work.

Define how each partner will be compensated

Of course you hope that your partnership makes a profit. But if it does, how will you deal with those profits? Include in your partnership agreement how much each of you will draw from the profits and how often. Also outline what percentage of the profits will be reinvested into the business.

Define how you will handle dispute resolution

Conflict is an inevitability in any relationship. There might be moments of deadlock where you and your partner(s) cannot agree on an important matter. It is wise to outline from the outset which dispute resolution methods you will use in the case of disagreement. Litigation should not be the first port of call. Alternate dispute resolution methods are a good option. Consider including mediation as a dispute resolution tool in your partnership agreement.

Need help?

If you require assistance in drafting a partnership agreement, please do not hesitate to contact us at info@gunstons.com.

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