Starting up your new business is exciting, from idea to execution there are new challenges to overcome and exhilarating times ahead. However, as with everything, it isn’t all fun and games and there are some serious and far less exhilarating things to consider… partnership agreements being one of those.
No matter how tedious or boring setting up a partnership agreement may seem in comparison to creating your website or designing your advertising, it is an essential if you are going into business with a partner. The agreement is there to protect you both and shouldn’t be seen as a negative or a point of tension. To ensure you have an agreement that is appropriate and protects the interests of all parties and the future of your business, the following should be included:
- Capital – this outlines the amount each party has contributed to the business and should also outline how future capital will be gained if required. It seems strange to plan for a future where additional capital is needed to stay afloat, but it is a great idea to get this down on paper, so that you can make a rational decision should it be required. Will you shut up shop if funds dry out, or might each partner provide a cash injection? You might even decide that external investment would be the way to go if a cash injection is required. Whatever your strategy, get it down now to avoid difficulties later on.
- Division of decisions – simply, this outlines who is in charge of what. Will you share decision-making in all areas, or do you each have specialisms that means you will be in charge of sales and marketing decisions and your partner is in charge of finance and operations. This is key to avoid future conflict and create a united business that can make assertive and quick decisions when needed.
- Salaries and dividends – this is crucial to the future of your business and should be documented at the start. It lays down your expectations for growth in the future and will determine how much each partner will be paid and when. If you want to grow your business rapidly then you realistically need to expect that salaries will be lower and money will stay in the business. However, if you prefer to be steady and have no grand plans for world domination, salaries and deductions from the business pot could be higher and more frequent. There is no right or wrong approach, but whatever you decide needs to be agreed on up front and documented.
- Death and disability – should the unthinkable happen and one of the partners becomes unable to fulfill their responsibilities due to disability, or even death, you need a plan as to who will take over their share of the business. Wills and trusts will need to be considered and put in place to determine who shares will be passed to. On the flip side, you need to all be in agreement as to the involvement of any beneficiaries in the running of the business. Will they be silent partners and take over shares, or are you happy for them to take on decision making and be involved in running the business.
There are many elements that need to be considered and it is always advisable to seek professional advice, although there are free templates available, these might not stand the test of time.