When you decide to go into business with someone you trust, it’s easy to assume that you don’t need a formalized agreement because you already see eye to eye on your business’s important details. However, neglecting to put a partnership agreement in place can have serious consequences and jeopardize your company’s future. Here are a few essential components to any partnership agreement, protecting you and your business from whatever challenges the future may bring.
Outline Contributions and Responsibilities
While you may have a general verbal understanding of each partner’s contributions to starting the business, it’s essential to put these specifics in writing. Your partnership agreement should identify exactly how much each partner contributed to the formation of the company, as well as their roles and responsibilities in running the business. In short, delineate what resources (i.e., money, time, effort, equipment, accounts, etc.) each partner will bring to the partnership. Should a disagreement arise where one partner accuses the other of failing to uphold their duties, the partnership agreement will provide a detailed account of each partners’ contributions to help resolve the dispute.
Planning for Death or Disability
While it may be unpleasant to envision the death or disability of a partner, planning for these possibilities will prepare the company to adjust—should the unthinkable happen. For instance, if a partner passes away, they may pass their ownership to their spouse or children in their will. As a partner, you should consider the implications for you and your business, should this occur. To address this issue, the partnership agreement could state that the partnership will purchase the deceased partner’s shares from the estate within a designated amount of time. Similarly, including a disability provision in the partnership agreement will give the partnership a roadmap for moving forward if a partner sustains a debilitating injury or condition.
Addressing Dispute Resolution Preferences
When launching your business, the last thing on your mind is a costly legal battle that brings tremendous stress and financial strain. However, planning for how you’ll navigate potential disputes in the future is the best way to mitigate costs and stressors associated with legal disputes. Many partnership agreements spell out their protocols for handling disputes, stating that they’ll initially attempt mediation or arbitration to resolve the issue. Providing yourselves a straightforward procedure for navigating conflicts can ease the anxiety and confusion, should a dispute arise.
Learn more about how partnership agreements can set your Colorado business up for success by calling Judex Law LLC today at (303) 523-4022.
