Dear M & M:
My friend and I want to go into business together; people keep talking about partnership agreements. What are some areas we should consider in developing a partnership agreement?
As always with any legal documents make sure you get a qualified attorney involved in the process. Trying to save a few dollars on the front end of this could cost hundreds or thousands in the end. According to the SBA, “Partnerships can be the most difficult corporate structure to manage without partnership agreements each partner is 100% liable for the business, regardless of the business percentage owned. And, each partner can individually perform business transactions on the part of the company without the others’ permission.”
A written agreement between all parties involved is a very important step to do before you engage in any enterprise with anyone else. Even if you are operating as a corporation there should be an agreement between all parties covering operational details on authority, methods to resolve disputes, investment stakes, time obligations, buy-outs, etc. A written agreement to your operational plans spelling out who does what, signed by all parties, drafted by a qualified expert is a sound business practice before you do anything else. Remember the following list does not cover all situations and it is strongly advised you seek assistance with a capable attorney.
Once again here are the questions the SBA advices you to include:
What is each partner’s share in the business?
What is each partner’s title?
Does each partner have a job description & responsibilities?
What is each partner’s authority?
What is each partner required to invest?
What is each partner’s weekly time requirement?
What is each partner’s monthly distribution (profit, loss, depreciation)? What happens if the business needs more investment?
What is each partner’s responsibility for future investment?
What happens if a partner cannot meet his time obligations?
What happens if a partner cannot meet investment obligations?
What happens if a partner is injured: time, investment?
What happens if a partner dies: what happens to his share?
Can a partner’s share be assigned to someone else?
How is each partners investment valued?
What happens if a partner wants to leave the partnership?
Should there be a non-compete agreement between partners?
Is a partner allowed to invest in a similar business?
What is each partner’s responsibility for any loans?
What business activities must be agreed to by all partners?
What business expenses must be agreed to by all partners?”
To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email firstname.lastname@example.org or contact the Sierra Vista Economic Development Foundation (EDF) at 520-458-6948 or email email@example.com .