Entering into a business partnership can be one of the most productive moves for your business. A new collaborator with a unique set of experiences and distinct expertise can add a new angle to your business that you may have missed out on before. However, designing a comprehensive partnership agreement is key to beginning a successful business relationship. In this article, we’ll explore Jason Kulpa’s top 7 topics to outline in your contract with your potential business partner that will set you up for success.
If one partner is unclear on exactly what is expected of them, the business could suffer from lost productivity or mismanaged funds and resources. One partner could end up taking on more than their fair share of work, creating resentment in the relationship.
Your partnership agreement should lay out each partner’s responsibilities and specific roles within the company as clearly as possible.
Mismanaged salary distribution is one of the primary reasons for the erosion of business relationships. Therefore, it’s a good idea to clarify precisely how each partner will make money from the business, if and how they will be reimbursed for investments, and how profits and losses will be distributed between partners. These decisions often correlate with the partners’ differing levels of authority and responsibility within the business. They must be outlined in your agreement.
Most businesses have several decisions to make throughout the workday that have varying degrees of importance and gravity. Allocating different types of decision-making to partners can increase your company’s efficiency and prevent the partners who have more authority and responsibility from developing decision fatigue, which can negatively affect the outcomes of significant decisions.
Contribution and return of capital
Starting and running a business always requires capital investment, but an imbalance of input between partners can destroy businesses and business relationships. Ensure that your partnership agreement clearly outlines how much capital each partner is expected to contribute, the exact share of company ownership given to each partner, and the steps you will take if more capital is required down the road.
Disability or death
Life can be unpredictable, which is why it’s crucial to have a plan in place if a partner passes away or becomes unable to work. Decide in advance what will happen to that partner’s shares in the event of death or disability. You should also decide on the role that the partner’s beneficiaries would theoretically play in the company moving forward.
Dissolving the partnership
Dissolution of your partnership can often be complex and emotional; having a plan in place will help to make the experience smoother if it needs to happen. Agree early on in your partnership what will happen to a partner’s shares should they ever decide to leave the business. You should also outline what will happen to any assets in question at the time of dissolution.
Even the most clearly outlined partnerships can become turbulent from time to time. Your partnership agreement should include your plans for mediation or arbitration should you ever require a third party to help settle your differences as calmly and effectively as possible.
About Jason Kulpa
Jason Kulpa is a serial entrepreneur and the founder and former CEO of UE.co, San Diego’s Fastest Growing Business multi-year award winner, and a Certified Great Place to Work multi-year winner. Jason is a San Diego’s two-time winner of the Most Admired CEO Award of the San Diego Business Journal and also a semi-finalist for the Ernst and Young Entrepreneur award.
Tommy Williamson did his degree in psychology at the University of Edinburgh. He has an ongoing interest in mental health and well-being.