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The Importance of a Partnership Agreement

The Importance of a Partnership Agreement

If you are creating a business with someone, a partnership agreement may not be the first thing on your mind. In fact, often when people are starting businesses they seem to be in agreement on everything, which is great. It is important to recognize, though, that the longer you work together, the stronger each of your opinions will become and the harder it will be to reconcile them. For this reason, making a partnership agreement as soon as possible when starting a business will give you the best chance of starting on and building from the same page. Creating a partnership agreement allows you to define your shared goals for the business, clarify your vision, and define your expectations for your business partner and the role that you will each play in building this company. 

Benefits of a Partnership Agreement 

There are many benefits to having a clearly defined partnership agreement. It ensures that both you and your partner are working toward creating the same vision, and have a straightforward understanding of your roles and responsibilities. Additionally, it serves to protect the business in the event that your personal relationship falls apart. Without an agreement in place, a rift in your working relationship can easily translate to the end of the business, but an agreement allows your business to exist outside of your relationship, and can even plan for what to do in the event that one partner does not fulfil their duties or obligations. This can help avoid difficult and tense conversations, by allowing you to simply rely on the plan to which you both agreed. Agreeing on important issues in advance, and deciding these issues when you are both in a good place can be critical to the longevity of the business, and it also makes your business more solid in terms of potential investors, who will be much more willing to invest in a business that has a plan in place for many of the scenarios most likely to put an end to it. 

Controlling Ownership of the Company 

One important feature of a partnership agreement is that it allows you to determine who owns the company as well as to place reasonable limits and restrictions on the transfer of ownership interests. For instance, say you and your business partner lack a partnership agreement and have a catastrophic falling out. There would be nothing to stop them from selling their share in the company to your worst enemy. Or, even in the absence of any kind of falling out, if your biggest competitor was to make a large cash offer to buy out your business, you would have no way of stopping them from selling their share. These are scenarios that we often do not think about until they are happening and we are helpless to stop them. However, ensuring that you share the same goals and vision for your business in the beginning and codifying that with a legal agreement, can prevent such potentially devastating outcomes and protect your business through all kinds of unforeseeable circumstances. 

Schedule a Consultation 

If you are starting a business and want to ensure that it is protected and supported long-term, call the SG Firm today and schedule a free consultation to find out how we can help you achieve your business goals.

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