If you enter into a business partnership, it is of course to want to avoid awkward discussions about a future dissolution that might never happen. No one wants to think of a possible breakup when a relationship is just beginning. However, business divisions are recurrent and for many reasons. Each of these reasons may concern you personally and professionally. This is why the partnership agreement should describe the expiry and exit procedures, regardless of the reason for the separation. It is also advisable to include a language dealing with redemptions and transfers of responsibilities if a partner is disabled or deceased. Other situations that should be addressed as part of a partnership agreement are lack of competition and confidentiality. Provisions that prevent a partner from sharing confidential company information with others or seeking employment with a competitor are essential to a business in order to maintain a competitive advantage and protect the investments of all partners. Running a business is a lot of work, and one of the biggest conflicts that can arise is that a partner takes a disproportionate share of the work. If one decides in advance who is responsible for what work, conflicts can be avoided. A written agreement will allow partners to agree in advance on important decisions such as dispute resolution.
One of the most important provisions of a partnership agreement is how disputes must be resolved. Partners can include in their agreement a dispute resolution provision that requires mediation and binding mediation. Without this in writing, there is no way to impose conciliation or resolution of disputes and to avoid costly and time-consuming litigation. They`re all in business to make money and create and maintain a comfortable life, aren`t they? Should your partnership agreement describe in detail how partners distribute your profits? How much is each partner paid and who is paid first? Describe not only how earnings are distributed, but also whether each partner receives a salary (and of course how much that salary will be). Your agreement should also include steps to take to end your legal partnership. You can choose if you and your partners can`t agree on the future of your business. Also explore what your state needs to dissolve partnerships. State law regulates dissolution and your state`s website should define the process and provide the forms you need to complete. The ideal time for partners to enter into a partnership agreement is when the company is created. This is the best time to ensure that owners share a common understanding of their expectations of each other and business.
The longer the partners wait for the agreement to be drawn up, the more opinions differ on how the business should be managed and who is responsible for what. If an agreement is reached at the beginning, violent disagreements can be mitigated later by helping to resolve disputes when they arise. As has already been said, disputes are inevitable in all respects. In business dealings, disputes can be blocked and even require mediation, arbitration or, unfortunately, legal action. Try to avoid the time and cost of litigation by requiring mediation and arbitration as the first (and hopefully definitive) solution to commercial disputes. There are many ways to resolve disputes so that your partnership agreement can list alternative dispute resolution methods. The aim is to formally identify these methods of solution in advance and include them in the partnership agreement when all heads are cold and clear.