Many people choose to go into business with coworkers, friends or family members. They trust the other party and are aware of their resources or capabilities.
Sometimes, people rush ahead with starting joint business enterprises without taking adequate steps to protect themselves first. Even when people have pre-existing connections to one another, a formal business partnership agreement is of the utmost importance for the protection of both partners and the business that they start together.
What does a partnership agreement include?
Partnership agreements typically include a variety of details about a working relationship that can prevent conflict and make business operations more predictable. For example, partners may outline what they intend to invest in the company and what job functions they expect to perform.
They may also explain how they intend to share profits if the company succeeds. Partnership agreements can include restrictive covenants that prevent the disclosure of trade secrets and buy-sell agreements that allow for a relatively smooth buyout transaction if the partnership eventually needs to end.
A pre-existing relationship with a business partner does not negate the possibility of misconduct or disappointment souring the dynamic between the parties. If anything, those who take for granted that their personal connection should influence business proceedings may eventually let their emotions get the better of them when things don’t go as planned. They may lack the contractual protection necessary to avoid a forced buyout or to hold a partner accountable for their disappointing job performance.
Both partners can benefit from clarifying their intentions and expectations in the early stages of a new partnership. Negotiating a thorough partnership agreement helps ensure that a company starts off with appropriate structure and protections in place.
