If you are going into business with someone else, you trust that they will share your vision and goals for building the business. However, simply assuming that you and your business partner will always see eye to eye opens you up to potential trouble later on. By putting a partnership agreement in place, you can commit your expectations and responsibilities to paper and ensure that the best interests of your Colorado business are sufficiently protected, no matter what the future may hold. Here are three basic elements that an effective partnership agreement should address.
1. Identify the Financial Contribution of Each Partner
Creating a business can be an exciting endeavor, but the process may feel chaotic and busy at times. It’s easy to forget to document the contributions of each partner, which may lead to legal disputes in the future. By clearly articulating how much startup capital or “sweat equity” each partner contributed in your partnership agreement, you can provide yourselves with a clear picture of exactly how much you each contributed to the launch of your business.
2. Delineate the Specific Roles of Each Partner
While you move toward the launch of your business, you may have informal conversations with your business partner(s) about who will perform which duties. This type of verbal agreement is especially common between friends who decide to go into business together—they often assume that they don’t need to go through the formal process of committing these roles to writing. Unfortunately, arguments can arise when one partner accuses the other of failing to perform their responsibilities, or when one partner appears to overstep their role. Make sure to include the precise role, responsibilities, tasks, and duties that each partner will assume once the business is up and running.
3. Plan for Dispute Resolution
When launching a new business, you are likely approaching this venture with optimism. Your long-term vision for your business may be one of growth, success, and sustainability—not filled with bitter and costly legal battles. However, it’s important to include clear instructions in your partnership agreement about how you’ll resolve potential disputes in the future. What happens if you’re equal partners and can’t come to an agreement? You may wish to commit to using a mediator, or you may decide to take contentious issues to your business advisory board for resolution. No matter which course of action you choose, the mere act of putting this decision in writing will streamline and simplify the dispute resolution process in the event that one arises.
For more information about establishing a partnership agreement for your Broomfield business, reach out to Judex Law, LLC at (303) 523-4022 today.