Most Important Things Every Partnership Agreement Should Address

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Starting a business with a partner is exciting! You’ve found someone who shares a common vision and is as excited about your idea as you are.  But, first things first: you absolutely must draw up a partnership agreement. A partnership agreement is a legal document that defines you and your business partner’s rights and responsibilities. 

This is an incredibly personal document that should address every concern you and your partner might have about doing business together. There are a multitude of things to things to consider when drafting a partnership agreement, but following, I will share with you three of the most important considerations:

Key Points Every Business Partnership Agreement Should Adress

1. Ownership

First things first: who owns the company?  And how much of it?  How are the two of you going to divide equity? Are you equal partners? Or is one person taking a majority of equity? The longer you wait to have this conversation, the murkier the waters become. Its important to clearly define ownership right up front.

2. Commitments

When ownership is settled, you and your partner should determine your financial and time commitments to the business. Are you both equal contributors?  And at the same time? The last thing you want in a business relationship is to feel like you are contributing more than your partner, or visa versa. Make sure that both you and your partner understand how much time and money each of you is expected to give.

3. Vesting

Finally, every partnership agreement should address what happens to a partner’s equity should they choose to leave the business. It can be frustrating to be the remaining partner in your business after your partner has left, yet is still receiving the benefits. To avoid this, your partnership agreement must address vesting – or, how the equity returns to the partner who remains with the business.

In the early stages of your business, sit down with your partner to address these items and any others you feel apply specifically to your partnership. Because this is such a crucial and intimate conversation, do not put it off until a later date.

You want these issues settled long before the partnership is tested. To ensure everything has been sufficiently covered, find good legal counsel. Although there are templates for these sorts of documents, the value of an attorney to make sure to make sure all your bases are covered cannot be understated.

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