You may share common goals or have a close friendship with your business partner, but that does not guarantee the partnership will run smoothly. Issues may arise along the way and drive a wedge in what was once a thriving business relationship, putting the partnership’s future at risk.
It is why you need to have a comprehensive written partnership agreement before you set the ball rolling. This legally binding document establishes the partnership’s rules and defines each partner’s rights and responsibilities. In other words, it serves as the roadmap for the partnership. Here is why you need one.
You can clarify roles and responsibilities
Disagreements among business partners often arise due to a lack of clarity on each partner’s role. It could be a misunderstanding over who is in charge of day-to-day operations or the decision-making authority of each partner. A written agreement will help avert such confusion by clearly defining the roles and responsibilities of each partner.
It will be easier to resolve conflicts
Partner disputes are almost unavoidable. It is the nature of business. A partnership agreement can provide a guideline on how to resolve conflicts as quickly and efficiently as possible, such as through mediation or arbitration, and ensure they do not affect business operations.
It outlines the ownership structure
Without a partnership agreement stating otherwise, all partners are considered equal, which may not necessarily be true. A partnership agreement can specify each partner’s stake in the business, how profits and losses will be shared, and how assets will be distributed if the partnership dissolves.
Ultimately, a written partnership agreement creates a solid foundation for your business to grow. As such, it is essential to take your time and develop a well-crafted legal document that will set your business up for success and protect your interests.