Gaizer.com Tips for Business Start-ups

Buy/Sell Agreements 

In order to safeguard the partnership from dissolution (in case one partner wants to leave the partnership or dies), you should create a “buy/sell agreement.” The  buy/sell agreement outlines what happens to the partnership if one partner cannot contribute to the business anymore due to death, disability, or simply leaving the business. The agreement permits partners to buy-out the departing partner’s interest in the business.

Another way to safeguard a business is by creating a “partnership agreement.” In case of conflicts or disputes between partners, you may face problems resolving these issues if you do not spell out the rights and responsibilities in a written document. Furthermore, without this document,  State laws control the outcome of these disputes, which may be detrimental to the partnership.

Partnership Agreements

The partnership agreement permits you to structure the partnership rules between you and your associates. This allows you to control the share of profits and losses being distributed, the responsibilities of each partner, what happens if one or more partners leave, individual authority and decision making, and voting power.

What to Include in a Partnership Agreement

The following list includes major issues that you should consider when making your partnership agreement.

Name of the Partnership: This point is self-explanatory; it is going to be your own name or an assumed business name.                   

Management Duties: Here you will set up guidelines on how to manage different aspects of your business such as accounting, supervising employees, and negotiating with suppliers.

Contributions to the Partnership: Partners should create a record of who is going to contribute what to the business, such as services, cash or property, and what ownership percentage each partner will have of the business.

Partners’ Authority and Decision-Making: Any partner can bind the partnership to a business deal (one exception to this rule is that a partner cannot bind the partnership to the sale of all its assets). With a written agreement, you can make clear that a partner will have to request consent from one or more partners before committing to a deal.

Allocations of Profit and Losses: You and your partners need to decide how to distribute the business income. Is it going to be directly proportional to the ownership in the business? Or will you and your partners agree to a different arrangement? Your partners will have different financial situations and preferences of how the money is distributed.

Resolving Disputes: You need to structure a way to resolve issues between the partners. It is important to establish a procedure for dispute resolution that is amenable to all partners.

Admitting New Partners: If you want to expand the business, get more investors, or locate key people who can contribute to your business (such as with contacts, influence or finding key customers), you will need a procedure on how to admit new partners.

Withdrawal or Death of a Partner: This is when your buy/sell agreement comes in play, outlining the procedures for a reasonable buy-out that ensures the continuity of the business.

This should give you an outline as to how to develop your partnership agreement; it is important that you think through these issues as well as other issues that can affect your business.