Taking the time to handle partnership contracts is something that most businesspeople would rather avoid, but it’s a necessary step in the early stages of your business. Once you get this out of the way, you’ll have a clear structure of your agreement and a document that you can enforce legally if you have to.
However, before your contract is drafted, there are a few things you should decide on. These are crucial elements to your partnership agreement that often get overlooked and can have serious effects on the long-term relationship between you and your partners.
You need to discuss how decisions will be made. Specifically, you’ll want to discuss how the most important decisions will be determined, especially when there isn’t a consensus. You might think it’s a good idea, for the sake of your partnership, that all major decisions require a unanimous vote. However, this often leads to slowed progress when disagreements arise.
It’s hard to predict the future and we all like to hope for the best -- but our job is to help you prepare for the worst. However you decide to handle the decision-making, it should be spelled out clearly in your partnership agreement.
Hopefully, you’ll never have to worry about this situation, but the reality is that unforeseen events can have a major impact on your business. You will have to decide what happens in the event that one of the members is unable to perform their duties by either death or disability.
In a tragic event, your shares can be passed to a family member or they might be dispersed between the remaining members in the partnership. Ultimately, it’s up to you to decide how you want to handle these scenarios, but it’s important to provide specific information regarding insurance, wills, trusts, etc.
This is an element of partnership agreements that many people intentionally ignore or avoid, but that’s never a good idea. It’s much easier to come to an agreement in writing now while everyone is on good terms than it is after a falling-out happens.
In the event that one of the partners wants out or you have a dispute, you should have clear terms of an exist strategy.