5 Key Situations Your Partnership Agreement can Help Avoid

Every business needs a partnership agreement to define your relationships as partners, outline your roles, and prevent disputes! Your agreement can be as brief or as thorough as you want, but as attorneys, we always advise our clients to err on the side of caution. It’s better to be safe than sorry, after all. We’ve outlined a few common scenarios that can cause conflict within a company—and how you can prevent them proactively in your partnership agreement.

Freeloading Partners

Maybe one partner only expected to contribute some money and equipment, leaving all of the hard work to you. Were you clear about your expectations in advance? Your partnership agreement should clearly define each partner’s role, along with responsibilities towards the business, such as money, time, effort, and division of labor.

Deadlock

While you may believe that you have a shared vision for your business, you never know how a big decision could cause a rift in your happy partnership. It is inevitable that you will disagree on something. Your agreement should outline how you will make decisions, both big and small, when you cannot agree.

Exit Strategy

What happens when a partner gets sick, retires, goes bankrupt or passes away? You may not expect any of these things to happen, but they are commonplace and should not take you by surprise. Be sure to decide how your business will handle situations where one of you leaves the partnership, including transfer of ownership and buyout options.

Trade Secrets

Every business has its own trade secrets, including business practices and client lists. One unfortunate scenario is your partner leaving leave to set up a new company, taking your customers. Just to be safe, consider adding a non-compete clause to your partnership agreement. The clause can prevent your partner from directly competing with your business within a limited scope of time and space.

Dispute Resolution

If it’s possible to settle your differences amicably, be sure to take steps to avoid the time, expense, and stress of litigation. Your agreement can include a dispute resolution clause to help you handle conflicts. The clause can require the dissenting parties to sit down with a neutral mediator you’ve chosen in advance to avoid litigation, or if confidentiality is a high priority, mandate binding arbitration.

For professional assistance in crafting a comprehensive partnership agreement, contact the law office of Muir & Associates. Our experienced business attorneys will get to your know your business to ensure the agreement is completely tailored to your needs.

Written by Jane Muir

Jane Muir