Why you need a partnership agreement for your business
I have mediated in many partnership disputes over the years, and all of them have had a common element – the lack of a partnership/shareholder/unitholder agreement.
You are in an exciting place. A partner, a great outlook and lots of blue sky. What could possibly go wrong! Frankly – a lot and it quite often does. Regardless of the fact that you are on the same page on day one, you and your partner will inevitably grow in different directions at different rates. Take it as a fact that you will rue the day you did not put in place a partnership agreement. (I will use the term partnership agreement to cover all entities)
What are the elements of a partnership agreement?
This is lawyer territory and I’m not a lawyer, so feel free to add to this list as you see appropriate, but it should include at least the following elements:
- Dispute resolution
- Ownership percentage
- Binding your partner
- Decision process
- Exit
- Day to day management
- Allocation of responsibilities
- Levels of effort and return
- Addition and removal of partners
- All of the above in writing
Why you need a partnership agreement document
- Times change and people change with them.
- Transparent explanation of what each person can expect from each other.
- If you don’t have one, the state or territory courts may force terms upon you. It will come as no surprise that the courts have a “one size fits all” approach.
- Most partnerships are symmetric (equal shares) and the vast majority involve two people. Therefore there is no clear method of resolving a dispute where it is 50/50.
- Minor problems become major problems.
- The cost and pain of resolving a problem is massively exceeded by the ease of having an agreement in place.
The “take home” from this is really simple; if you are in a partnership and you don’t have an agreement – get one. If you don’t want to spend money on lawyers, draft you own; it will probably be better then nothing. If you want professional assistance, and we firmly counsel you should, get a competent lawyer involved. If you don’t know one contact Warren Maris on 07-3483-0100 and we can refer you to an expert we know.
