Before people get married, they usually come to a tacit agreement about some important things they will face in their lives together: Whether to have children, how those theoretical children are to be reared, where to live, what religion to accept, and who has is to remove hairy spiders from the bathtub. But certain things are left undecided, like who must take out the trash when it feels like 20 below. It's one of those things that you negotiate when needed. But on the whole, the fewer things that you decide on the fly, the smoother everything works.
Business partners, even ones that aren't married, are much like married people. They spend a lot of time together they are combining wealth, commitment and effort. And they need to decide early who is going to take out the trash.
An agreement between business partners is a necessity. And it should be on paper. And it should be legally binding. Partnership or share holder agreements can prevent what should be minor irritations from becoming a business-ending battle.
David Bates, a shareholder at Florida-based law firm Gunster, recently wrote about partnership agreements in the Birmingham Business Journal and he lays out textbook fundamentals that belong in every agreement. After all, concentrating on the basics never made anyone less prepared.
Here, in very broad terms, are questions that need to be answered about how your business will be conducted. Answering them before it's 20 below will be beneficial, if in nothing else, fewer future headaches:
- What is each owner expected to contribute to the enterprise, in time and money and intangibles?
- Paired with what each put in, how are any profits going to be handled?
- When there are disagreements over the direction of the business, how will the final decision be made? Is a mediation provision needed to avoid costly litigation?
- Is a buy-sell agreement needed?
- Will there be a board of directors, and if so, how will members be chosen and dismissed and what is the owners' relationship to the board?
You also have to consider the matters of confidentiality and competition. Should each partner be legally obligated to keep vital information confidential? And how long does a partner have to wait after leaving the company to set up a competitor?
Which leads to the question of how to handle partners leaving the business? If an owner decides to leave the business, for whatever reason, what will her responsibilities be? Will she be allowed to sell her assets to anyone, even to someone you'd rather not associate with, or will other owners have the right to buy her shares or block the sale? (Antagonistic partners may fun to read about or watch on TV, but you really don't want to experience it.) Further, are there times when an owner should be forced to sell, such as incapacity or divorce in the case of married business partners? If so, what are the terms?
These are not the only questions you will need to answer. We have a number of questions that should be asked when starting a business. Each business is unique, which mandates a unique partnership agreement. Of course, there will be problems you cannot anticipate. So taking care of those you can is just common sense.
At Bellas and Wachowski we have a history of working with business owners to ensure that partnership agreements meet the needs of the people looking to start a business and with those who are seeking to formalize an existing venture. In addition to our information about shareholder agreements, we also provide vital information about other aspects you should consider when starting, or running, a business. Visit our web site for lots of informative articles on various business-related subjects.
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