Some of the best new businesses start out as just a group of friends with a good idea. As the business grows, their friendships can be tested in ways they did not expect. Even the best friendships can be strained by the pressures of running a business, and when business dispute gets combined with a personal dispute between two or more ex-friends, things can get very uncomfortable for everyone involved.
This possibility is just one reason it’s a good idea to get a new business on a solid legal footing as soon as possible. Some businesses may want to register as an LLC or a corporation, but perhaps the simplest business formation is a partnership.
This is not to say a partnership is simple, however. Partnerships can come in many forms. This adaptability is one of the strengths of the partnership as a business format, but it can also lead to problems. The partners must all know their responsibilities, and how to resolve problems between them. A partnership agreement is a contract that puts all this information in writing and makes it legally binding.
Information that should go in a partnership agreement includes: the name of the business; the expectations and responsibilities of the partners; how they will split profits; how the business can add new partners, if necessary; how the business will handle affairs if one partner leaves or dies; and more.
It’s a good idea to execute a partnership agreement early on in the life of the business. When partners go into a new business venture knowing what is expected of them, and knowing how they will resolve disputes, they are in a better position to help their business to thrive. And, in the case of friends who go into business together, they are in a better position to preserve their friendship.