Partnerships can be born out of single conversations wherein people realize they have overlapping interests. A good business idea and a desire to work together are all that is truly necessary for a successful business partnership to begin bearing fruit.
However, having the right paperwork is also crucial for long-term success. Partners must have a plan if they expect their business to be profitable and successful in the long term. They also need to consider how their relationship might change and how that reality could affect the business.
Partnership agreements help protect both of the parties involved in starting a new business and reduce the likelihood of disputes in the future leading to problems for the company.
People need to have the same expectations
Although two people could agree about a partnership, they may both have very different ideas about what that partnership entails. Those who clarify in writing what they will provide for their business and what they expect from their partner will have an easier time getting what they expect and meeting people’s expectations.
The sooner prospective partners address things like investment, hours worked and compensation, the less likely they are to end up disagreeing about how much each of them should commit to and receive from the business.
Partners need to plan for the end
What would it take for one partner to buy out the other? At what point would the partners agree to sell the company to an outside party in the future? How long will each partner commit to staying in their role at the organization before potentially moving on to new opportunities?
As important as it is to have an understanding of what each partner will do for the company, they also need to think about what will happen at the end of their business relationship. Including rules for buyouts and dissolutions, as well as terms for severance packages, can be very important for the future of the organization that the partners intend to start together.
There are many other terms that prospective business partners may need to include in the contracts that they draft with one another. Creating strong partnership agreements helps those with entrepreneurial ideas protect their interests as they start a new organization with at least one other person.