By Rieva Lesonsky
Every business partnership starts out with great expectations of perfect symmetry—a successful blending of complementary skills and soaring profits. Unfortunately, sometimes the reality is not what either partner hoped for. Drawing up a legal partnership from the beginning can help alleviate some of the stress—and appease the concerns of a small business investor or small business loan officer. At the very least, the partnership agreement should document how profits will be divided between partners, the partners’ rights and responsibilities, and the steps to follow when a partner leaves the business.
Here are 7 points you should include in the agreement:
- Determine and document what contributions each partner is making and what the responsibilities of the contribution will be, such as a strictly monetary contribution with no day-to-day involvement in the business, or full participation in managing the company.
- It’s important to get all partners’ job descriptions in writing so there isn’t any finger-pointing down the road. Review the responsibilities annually, in case things have changed.
- Clarify the percentage of shares assigned to each partner and how those shares will be redistributed if investors are sought. Always keep the agreement current and accurate and state if there is any other compensation, such as salary and bonuses. If there are bonuses, how are those determined?
- State how profits and losses will be shared between the partners.
- What is the process for bringing on a new partner or partners?
- Most important in the agreement is the process for dissolving the partnership if the business closes. What happens to the partner shares and the business if the company dissolves? Determine whether the business assets will be divided between partners and what happens to the debts.
- Spell out the process involved for other scenarios, such as if one partner wants to leave the business, or if a partner falls ill or dies. Most of the time, the partner’s shares go back to the business, but you can also choose to have them go to the partner’s family. In ththe late June is case, you need to determine if the partner’s family will have any say in the business.
Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at email@example.com, follow her on Google+ and Twitter.com/Rieva and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports