Your business partner(s) should balance your strengths and support you through the good times and the bad. They should also be willing to communicate with you freely and often. And while you and your partner may agree about everything now, disagreements and unexpected events are inevitable. That’s why a written partnership agreement is so valuable. Do you and your partner(s) have one?

The Value of Your Partnership Agreement

The need for a partnership agreement can be summed up in two words: things change. It’s important to sit down now and hammer out potential scenarios and solutions in a written agreement. You never know what the future may hold for you, your partner(s) or your business. Your agreement will make sure that you have a plan ready no matter what may come your way.

What to Include

A partnership agreement should anticipate major business changes and spell out how to deal with them. The agreement should also indicate what initial capital contributions (or services) will be made when additional capital contributions will be required, and how profits and losses will be shared.

Questions to discuss include:

• What are the rights and obligations of the other partner if one partner passes away?
• Under what circumstances can a partner leave, retire or be expelled?
• What are the financial arrangements for departing partners?
• How long must an ex-partner wait before starting a competing business?

A partnership agreement can’t address every possible contingency, so consider an arbitration clause to handle disputes that you and your partner aren’t able to resolve on your own. Without such a clause, your only alternative could be costly litigation.

With a carefully designed partnership agreement, your business will run more smoothly and provide you and your partner(s) with peace of mind. Your attorney can assist you with the legal aspects of the agreement and you can contact Cray Kaiser with questions regarding your finance and tax-related aspects.