Forming a business partnership is an exciting prospect. Your business will benefit significantly from the strategic insight and contributed capital from each partner.
Done properly, a business partnership can open up more avenues for economic growth and help your business achieve profitability at a faster pace.
However, it is important to complete a business partnership agreement before you begin running the business.
A carefully drafted partnership agreement will help your business manage operations, amicably resolve future disputes and divide up responsibilities between each partner.
Continue reading to learn how to successfully negotiate a business partnership agreement.
We will also cover the specific elements that go into creating a well-drafted partnership agreement.
Negotiating Your Business Partnership Agreement
To create a successful business partnership agreement, you must make sure that each partner benefits from the terms of the contract.
To do this, you will have to compromise on certain details to satisfy each business partner.
Learning how to compromise is an essential component of a successful business partnership, and it starts with negotiating the partnership agreement.
While it may seem strange to negotiate with people you hold in high esteem, it is important to have a framework in place that will help you address future legal and financial problems.
Here is what you should know about entering into negotiations for your business partnership agreement.
Know Your Deal Breakers and Must-Haves
Before you begin negotiations, you must decide what you want to be included in the partnership agreement.
You also must decide what you are willing to give up to satisfy your partners and reach an agreement.
Identifying your deal-breakers and must-haves before entering negotiations is crucial. Doing so will help you relax and feel comfortable throughout the negotiating process.
It will also help you speed up this process and reach a partnership agreement more quickly.
Set Clear and Actionable Goals for Your Business
While you may assume that you and your business partners have mutual business goals, this may not necessarily be the case.
Before negotiating a business partnership agreement, each partner should sit down and set clear and actionable goals for the business.
During negotiations, each partner can share his or her vision for the business and learn where there are areas of agreement and disagreement.
You should address any differences in strategy or intention before finalizing the partnership agreement.
Hire Legal Representation From the Start
Many people make the mistake of negotiating a business partnership agreement without legal counsel.
While you may assume that you and your partners can work things out on your own, it is always best to have an experienced attorney present during the negotiating process.
Ideally, each partner will have his or her own legal counsel present. An attorney will help protect your physical and intellectual property, make sure the agreement adequately represents your interests and de-escalate any situations that could derail the negotiations.
You should focus on experience when searching for a business attorney to represent you during negotiations. The more complex an agreement is, the more you will need an attorney with intricate knowledge of contract negotiations
What to Include In a Business Partnership Agreement?
It is important for your business partnership agreement to address each element of starting and running your business.
A clearly outlined partnership agreement will address any challenges or disagreements that may arise when more than one person is in charge of making decisions.
It will also help you take advantage of each owner’s knowledge, skills and resources and make sure that each partner feels respected for his or her contributions.
Here are some of the specific elements that go into creating a well-drafted partnership agreement.
Name of the Partnership
Each partner must agree on a name for the business.
You should choose a name that is unique and not taken by another company.
You can conduct a name availability check
with the Arizona Corporation Commission to find out if your name of choice is available.
An attorney can also help you with the entity search and business formation process.
Duration of the Partnership
Most people do not have an end date for the dissolution of their partnership.
You and your partners may decide to dissolve the partnership after the business reaches a specific goal or a certain amount of time has passed.
In this circumstance, you will want the specific end date included in your business partnership agreement.
Contributions to the Partnership
To avoid disagreements about responsibilities and ongoing finances of the business, your partnership agreement should clearly define each partner’s stake in the business and what each person will contribute.
The agreement should clearly list the responsibilities of each partner and catalog what each partner brings to the partnership.
This could cover a number of items, including financial contributions, equipment, clients, etc.
Distribution of Profits and Losses
Of course, each partner will want to make some money from the business venture. However, you and your partners may disagree on how to split the business profits.
It is important to decide how each partner will get paid and how much each partner will make if he or she receives a salary from the business.
It is also important to decide how business losses will be distributed.
While you may not want to consider the idea of your business taking a financial loss, you must consider the possibility. A strong partnership agreement should include provisions on how to handle this type of situation.
Although you and your partners may seem in agreement right now, there will come a moment when one party does not agree about a decision that another party made.
Your business partnership agreement should address this eventuality and outline who makes day-to-day management decisions and who makes longer-term decisions.
The agreement should list the decisions that require unanimous consent and decisions that require only a single partner vote.
By setting up a decision-making structure, you can eliminate a lot of the strife that causes many business partnerships to fail.
What happens if you and your partners cannot reach an agreement about a particular decision? How will you handle the dispute resolution process?
These are the types of questions your partnership agreement should address
If you do not want your disputes becoming part of the public record, then you should consider making private mediation your go-to method for conflict resolution.
However, if legal action is required, then an arbitration proceeding could help you resolve your partnership dispute.
Your agreement should clearly state the resolution process for your business partnership.
It is impossible to prepare for every single scenario your business partnership may encounter.
However, there are some scenarios that you can prepare for, including but not limited to:
- Sickness or death of a partner
- Change in partners
- Withdrawal of a partner
- Changes to the partnership agreement
- Potential buyouts
- Retirement provisions
These are some of the most common issues your business partnership agreement should address.
Depending on your specific type of business, there are a number of potential outcomes you and your partners should also consider addressing.
A Scottsdale business attorney can help you identify the most common problems that plague your business’s particular industry.
Need Help Negotiating a Business Partnership Agreement?
If so, then you should contact a business planning attorney in Scottsdale
today at (480) 820-1800 for assistance.
Attorney Karl Pearson can help you and your partners write up an agreement that will prevent you from experiencing great difficulty in the future.
While paying for an attorney at the beginning of your partnership may seem like an unnecessary expense, it will save you money in the long term by helping you avoid costly commercial litigation battles
It will also keep you and your partners on the same page, increasing the likelihood of your business partnership succeeding.