Creating a partnership agreement is essential before moving forward with any business venture involving two or more people. They are considered a protective measure to ensure that any future disagreements have a quick and fair resolution. A good partnership agreement can also prevent future disputes and form a well-defined structure for your relationship with your partner(s).
There are several questions you should ask before finalizing any partnership agreement, as well as several critical details to include. In general, five major areas need to be addressed while creating a partnership agreement.
Values
What values do you and your partner(s) share and where do you disagree? Are you moving in the same direction, with the same goals in mind? It is important to outline the goals of your partnership at the beginning, and it is equally important to determine how your values might shape how you achieve that goal.
Conflict
How does your partner(s) handle stress and manage conflict? How have they dealt with conflict in past business, as well as personal, relationships? How will disagreements and disputes be handled? Including how the profits, losses, and draws of the business are divided, as well as which person, or persons, have final and binding authority; this information can prevent future disputes. Additionally, detailing the ownership percentage for each partner, as well as what would happen in the event of a partner’s death or disability is a critical detail in a partnership agreement.
Work Ethic
How much work will each of you be responsible for, and what type of hours will each person work? What is your partner(s) work style and are they effective when they are working? Understanding each person’s contribution, as well as their general work ethic, is important to understand before finalizing any partnership agreement.
Integrity
Do you trust your potential partner(s) and what is that trust based on? Can you trust that they will do what is right, even when it isn’t profitable or convenient? Being able to trust your partner(s) is one of the most important factors in considering a partnership agreement.
Devil’s Advocate
Finally, why shouldn’t you partner with this person? What dangers could you face in the future as a result of this partnership? Playing the devil’s advocate allows you to see potential problems that might be in your blind spot due to outside factors.
Asking these questions and outlining a detailed partnership agreement can prevent and resolve disputes that could be catastrophic to not only your business but to your relationship and financial well-being.
