When you first get your startup off the ground with a partner, it’s easy to feel like you’ll be in it together for the long run. But what happens when the dynamic begins to shift? One person may gradually devote less time and energy to the company, and the other may plan on taking it in a new direction. While thinking about the future and brainstorming ideas is always acceptable, if you take action without discussing it beforehand with your partner or skip out on the workload, you may be in violation of the terms of your partnership agreement.
By creating a partnership agreement with your business partner, you’re outlining expectations with one another that help keep you on the same track for the business. If you’re working on writing one up, be sure to include the following partner-specific items alongside general agreement terms.
One of the most basic clauses a partnership agreement has is also one of its most important. For the term of the agreement, be sure to specify a month, day, and year for the beginning of the partnership. Most partnership agreements agree that the term will continue unless termination, with termination terms outlined in the contract.
Who is giving what amount to the business for initial capital? Your agreement should include capital contributions from each partner in an agreed upon value. Define how much will be deposited by both partners, the account the money will be kept in, and terms of profits and losses that the partners share.
Admitting a New Partner
Should you decide to bring more partners into the partnership fold, include a section about what the process will entail including how they will be admitted (generally, this is conducted through a vote).
Voluntary/Involuntary Withdrawal of a Partner
For partners that want to voluntarily withdraw from a partnership (or may have an involuntary withdrawal that may be related to a number of factors), there should be terms in place that explain the process for withdrawal. In both cases, withdrawal results in the partnership’s dissolution. For anyone leaving voluntarily, there must be an agreed-upon timeline for serving a notice of intention. There should also be clear outlines in place for dissolution, particularly for distribution of property and how soon the partnership business will be liquidated.
Death of a Partner
In the event of either partner’s passing, the agreement must outline the right of the surviving partner to liquidate the partnership business or purchase the decedent’s interest.
Remember, each partnership has different needs to take care of and if you have more specific ground to cover, consult a lawyer to assist you in drafting an agreement. Your state will also offer default rules if you don’t have an agreement, but by taking the time to draft one up with your partner, you can rest assured that all of the terms surrounding your business will remain on the same page—literally!
Originally published by SmallBizClub