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Key considerations for a strong partnership agreement

On Behalf of | Jul 6, 2021 | Business And Corporate Law

Creating a business requires a substantial commitment of your time, energy and resources. Doing so with a partner who shares your vision and drive can help keep you motivated and the business geared for success, especially in the early stages.

However, partnerships can encounter numerous risks or threats over the lifespan of a business. To prepare for uncertainty or even future disputes, creating a sound partnership agreement is essential to protect your Michigan small business and the interests of partners. Considerations to address in the agreement include:

The percentage of ownership between partners

Keep a detailed record of the contributions of each partner to determine a fair ownership split. Consider both the financial contributions of each and other contributions like sweat equity, equipment and more. Your agreement should also detail the allocation of profits and losses based on the percentage of ownership or more. According to The Balance, this is critical to both detail the tax obligations of each partner and to avoid future tax issues.

How critical decisions will be made

Detail a process to make both critical decisions that affect the future of the business and smaller, everyday decisions. This process could include having the partner with more authority make critical decisions, conducting a vote among all partners, conducting a vote among a board or more.

How disputes will be resolved

How will your business face future disputes among partners? Decide how you will address a dispute, potentially by first requiring alternative dispute resolution (ADR) techniques of mediation or arbitration before resorting to litigation. Determining this ahead of time can save considerable money and time.

The exit or death of a partner

Your business could be at risk should one partner suddenly become incapacitated, pass away or decide to leave the business. Planning for such uncertainty in the early stages of your business can help to keep the company stable in a potentially turbulent period. A solution to this could include establishing rules for a buy-sell agreement between partners.

Whether you choose to go into business with a family member, friend, former colleague or more, embarking on a business venture in Michigan is a big decision that requires the creation of a sound partnership agreement. Discuss your needs with a lawyer to guard both your interests and the future of your business.