Slowly but surely, everything is falling into place. You have financing and office space, supplies and inventory. You have a rock-solid business plan, vendors and clients who are eager to get started. You have a partner who promises to be a powerful force who can help to propel your new business into a successful future. However, is it possible that your partner could also be the element that brings your company down?
Studies show that partnerships have a much higher rate of success than sole proprietorships, but there are also more opportunities for deal-breaking disagreements when more than one person is at the helm. Business advocates say the best way to prevent this and to improve the chances that your business will succeed is to have a partnership agreement from the very beginning.
Problems you didn't know you had
You may think you and your partner will not come across any situation you can't work out together. However, when your business is up and running, taking time to debate things that need an immediate decision may not be feasible. In fact, the first decision you might need to make is "who makes the decisions?" Thinking ahead and having a contingency plan will not only preempt discord, it could make your business run smoother and more efficiently.
Some other important questions your partnership agreement may answer include the following:
- What percentage of the business will each partner own?
- How will you allocate profits and losses between you and your partner?
- How will each of you contribute -- financially and physically -- to the running of the business?
- What method of dispute resolution will you use?
- What will happen to the business if one of you should pass away?
- Will you and your partner have the right to sell your shares of the business?
- Will your business bring on additional partners and, if so, how will this happen?
- How will you end the partnership?
You may be able to see just by examining these few questions how much may be at stake if you and your partner have not addressed such important matters at the beginning of your business relationship. If disputes about these matters arise without forethought, you may not have time to reach a decision before the partnership dissolves.
Increase your chances of success
Many business experts feel that entering a partnership without consulting a Virginia attorney to draft a comprehensive partnership agreement may diminish your chances of long-term success.