In business, partnerships can be highly beneficial. Partnerships allow business leaders to combine experience, skills and expertise.
However, as in all professional relationships, contracts are key. A partnership agreement is a must-have for companies utilizing partnerships. Here are a few reasons why.
Clearly defined roles
Partners must be clear on their authority to make key decisions and what they are expected to do daily. For instance, can one partner fire an employee without consulting with the other partner? Who is responsible for making key personnel decisions?
Without a clear structure, things can quickly go wrong. A partner may become frustrated at being undermined or left with a workload that is too heavy.
Profit sharing
Most partnerships operate on a profit-sharing basis. Each partner should know how much money they stand to make for the effort they put in. Is there a guaranteed minimum for each partner, or does remuneration depend entirely on how well the business does each year? Who is financially liable if the company makes a loss? Who is responsible for paying debts off or reinvesting in the business?
Exit strategies
Business partnerships don’t last forever. What happens if one partner wants to move on or retire? Can someone else come in and ensure stability for the business? A clear exit strategy ensures that changes in leadership do not disrupt operations.
A partnership agreement can address all of these issues, as long as it is well drafted. While professional relationships may work out informally initially, this tends not to last. All aspects of the business must be backed up by contracts. Seeking legal guidance will help ensure you have the appropriate agreements in place.