It is possible to go into business without a partnership agreement in place. Some people are friends, coworkers or even family members before going into business together. They simply shake hands and start their new company.
There are, however, some major risks to doing it this way. It is wise to have a partnership agreement up front so that you can avoid disputes and conflicts. Here are three areas to consider.
Ownership percentages
Start by defining the percentage of the company that you own, and the percentage that is owned by your partner. This could be simple if both of you own 50%. But it can be more complex when there are multiple parties involved or when one person is a majority owner.
Roles and responsibilities
Next, consider your roles at the company — where they may overlap and what is expected of each of you in your day-to-day duties. Having things like this well defined helps partners work together without as many conflicts. Many business partner disputes happen because of conflicts over creative decisions, hiring decisions and things of this nature.
Earning distributions
Finally, if the business is successful and begins bringing in money, you need to determine what will happen with those earnings. Do they get reinvested in the business? Do you and your business partner each take a salary? Do you just split up all the earnings between the two of you? There are many options, but you need this to be established in writing before money starts coming in.
Whether you are drafting a business partnership agreement or navigating a dispute, it is wise to have sound legal guidance.