So you want to start a new business venture and create a partnership? Great! Perhaps your potential partner is your spouse, sibling, long-time friend or investor. No matter who your new business partner is, the start of a business partnership is a bit like a new, romantic relationship where all is well and nothing can go amiss. Nevertheless, a large dose of reality is required.
Before matters have a chance to go wrong, the best way to handle any ups and downs is to enter into what is known as a Partnership Agreement. This will not only protect your business, but it will also protect your personal interest. Partnership Agreements can vary according to the individuals and the business, however these are the most common clauses that you should include in your Agreement, which, must be in writing and signed by all parties:-
- Percentage of Ownership; You should make sure that you have a note of how much each partner has contributed into the partnership prior to its opening. These are typically used as the basis of how much each partner owns. However, the type of ownership can vary according to what kind of contribution is made. For example, one partner may pay a large amount of cash but not work a single day in the business, whereas another partner may not choose to invest cash but works all day every day for that business. As such, the partner who invests the cash may get a get a greater percentage of ownership or vice versa. Of course, this decision is all up to you.
- Allocation of Profit and Losses; You should ask yourself whether profits and losses will be allocated in proportion to what each partner inputs work wise to the partnerships or simply how much they have paid in contribution? Will the profits be distributed at the end of the year or will each partner be entitled to a regular withdrawal of allocated profits from the business? Either way, some partners may have ideas that differ from your as to how money should be divided and you all have different financial needs, therefore this is an extremely important point you should pay attention to.
- Decision Making and Partner Authority; Decision making in a business is rather difficult and more often than not a business failure arises from a company stalemate. Thus, the importance of establishing who has the authority to make decisions or create a decision-making process is necessary before you can proceed with your partnership smoothly. Without an agreement in place, any partner can bind other partners without their consent. Therefore placing a clear authority within your agreement which requires a partner to obtain some or all of the others’ authority is important.
- New Partners; Suppose you’re looking to expand and want to bring in new partners? That’s great, but placing a clear procedure for when such a time occurs will make your life and your partners’ lives much easier when the issue arises.
- Removal / Departing / Death of a Partner; As important as admitting new partners, the removal / departure / death of a partner is equally as significant. Usually if one partner leaves or passes away, the partnership will dissolve and you will no longer have the business you spent years building will disappear before your very eyes.
Freeman Jones Solicitors are available on 01244 506 444 for you to make an appointment. The initial 30 minute consultation is free of charge for you to discuss your legal problem with one of our employment law solicitors.