Entering a business partnership can present a unique opportunity to combine resources and multiple individuals’ strengths. Such a collaboration can allow a business to soar to the next level. However, sharing the same vision for a business venture might not be enough to sustain a partnership.
Before diving headfirst into operations, partners can benefit from establishing a rock-solid business partnership agreement. A legally binding contract is a surefire way to solidify the collaboration and provide a roadmap for a business journey. Business partners can benefit from familiarizing themselves with the elements that can help ensure their partnership is built on a solid foundation.
Roles, responsibilities and decision-making
A rock-solid partnership agreement should clarify every individual’s roles and obligations within the enterprise. Partners should note each other’s unique skill sets and talents to help ensure each party is allocated responsibilities they can efficiently fulfill. Understanding how one’s contributions propel the business to greater heights is an excellent incentive for partners to play their part.
A partnership agreement should also specify which partners have decision-making authority for various company operations. Will all choices require unanimous approval, or will a majority vote suffice? Determining decision-making procedures beforehand fosters clear communication and helps prevent decision-making gridlock.
Capital contributions and profit/loss sharing
Establishing how much financial capital each partner should contribute towards the enterprise is important at the beginning of a collaboration. Partners should define each party’s initial capital contribution as well as future contributions. Capital contributions can be in the form of:
- Financial investment
- Real estate property
- Intellectual property
Financial transparency is paramount in any partnership because one of the main objectives for partnering is to boost an enterprise’s financial gains. Therefore, the partnership agreement should specify how the partners will share losses and profits.
Partners may want to share profits and losses based on ownership percentage or base the split on the level of contribution (time, expertise) each partner brings. Having open discussions on the subject can help partners agree on what works best for their enterprise. Clearly documenting the agreed-upon stipulations regarding finances can minimize resentment and help ensure everyone feels fairly compensated.
A strong business partnership agreement is an investment in the future of any business venture. Partners can lay the groundwork for a successful and sustainable collaboration by discussing and documenting these critical elements. Appropriate legal guidance can help ensure partners address any legal concerns and that each party’s interests are prioritized.