Co-owners often formalize an agreement with a handshake, but no serious partnership should move forward without a business partnership agreement. The best agreements are those that are the most thorough. They can also change over time as the business grows and changes, but they need to address the partnership’s current state.
An attorney should draft it, regardless of whether two or more colleagues break off from a company to start a business or brothers assume ownership of a family business.
Always put it in writing
The cardinal rule for any agreement that involves money or a professional commitment is to put it in writing. The reasons for this are endless, but generally, it provides guidance for rules of engagement and helps define the business’s identity. Some common business concerns that it addresses include:
- It outlines the details of the ownership stake.
- It specifies the roles each partner has in the business.
- It outlines the decision-making process.
- It provides guidance when disputes among partners arise.
- It outlines responsibilities or job descriptions.
- It specifies how profits and losses are allocated.
- It provides direction if one partner wishes to leave.
- It dictates how new partners are brought in.
Disputes can still arise
A well-crafted business partnership can reduce the chances of disputes, but no one can plan for every potential issue. Ideally, the agreement sets a tone of civility or collaboration, but sometimes conflict between partners will involve arbitration or litigation. Those facing this type of challenge often find it best to work with an attorney comfortable protecting their client’s business and financial interests in front of a judge.