You’ve been best friends with your business partner for decades, and you trust each other completely. Why, then, would you need to bother with a partnership agreement for your business?
When there’s a personal relationship between them, people often hesitate to ask their business partners for a written document that outlines the parameters of their partnership. They’re afraid of looking like they don’t have any faith in their friend’s integrity and causing offense.
Partnership agreements, however, can help preserve personal relationships — not destroy them. Here’s why you need one, even when you’re going in to business with your closest friend:
- You need to clearly define each party’s roles and responsibilities. If you and your partner are ever at odds about a decision, you can end up in an impasse that strangles the growth of your firm. A clear agreement can help define who has the final say over any specific issue.
- You need to protect your business from losses. If you died tomorrow, what would happen to your business and your partner? If your partner gets in to an accident and becomes disabled, would you be okay? A good partnership agreement can help you manage risk by setting expectations about what kinds of insurance each partner needs to have and other loss mitigation strategies.
- You need to prepare for changes. Life is filled with change, so it’s not unreasonable to expect things like marriages, divorces, retirement and death. Your partnership agreement can spell out what happens to each party’s share of the business in all of those situations.
A good partnership agreement is less concerned with what is happening now and more concerned with all of the “what ifs” you and your partner may someday face. Working with an attorney can help you draft an agreement that will keep your company operating properly for decades to come.