If you have teamed up with a friend to open a new business, it is crucial to have a formal business agreement. Running a business can test even the closest friendships, and it is best if everything is spelled out beforehand.
When everyone understands their position in the business, it will reduce the chances of conflict or misunderstanding. It may also help steer the partnership by providing direction in case of a fallout with your friend.
What should you include in an agreement?
The first thing you need to do is define the roles and responsibilities of each partner. How will you run the business together? Who is in charge of making financial decisions? What actions require a consensus? All these need to be clearly outlined in your partnership agreement.
The agreement should also detail each partner’s stake in the business and their non-monetary contribution. You should also include how profits and losses will be divided between the partners. Other important provisions include:
- How disputes will be resolved
- The process of adding or removing partners
- The length or duration of the partnership
- Exit strategies in the event of withdrawal or death
- The direction and objectives of the company, among others
A solid partnership agreement can set the proper foundation for your business and save you a lot of costly legal and financial trouble in the future.
Getting it right
Do not wait until you have a dispute or even or start making money to formalize your partnership. By then, there may be new developments that may only complicate matters. Therefore, consider having a formal agreement before the company is up and running.
Getting a well-drafted partnership agreement tailored for your business is crucial to avoid loose ends. It can help your friendship and your business.