You’ve spotted an opportunity in the market and want to move fast before someone else has the same idea. The only problem is, you don’t have the money to do it all yourself. So you approach a friend and ask if they want to go into business with you.
If you want a business partner to remain a friend, you must draw up a partnership agreement before you begin. Failing to take the time to do so makes it more likely that you will have problems in the future. Partnership agreements help you define your business relationship and protect your friendship. These are some things you should include:
- Ownership: Define the percentage owned by each partner. If there are two of you, consider unequal ownership, to avoid potential stalemates when you cannot agree on decisions.
- Disputes: How will you settle any issues between you? You could stipulate that they must be dealt with by arbitration, to reduce the risk of costly litigation between you.
- Selling on: If your partner wants to leave the company in two years, what rules govern how they may sell their share of the business? How much notice must they give? Can they sell to the highest bidder or do they have to offer you first refusal? If so, how will you decide the price? If they want to sell to someone else, must you approve the potential buyer?
- Moving on: Who owns the intellectual property? If your partner leaves, is there anything preventing them from setting up a rival company?
By hiring a business law attorney when setting up your business, you minimize the amount you will need to use one later.