Working with someone else often leads to disagreements, no matter how compatible and single-minded you both may be. You may remember trying to get along with your siblings, working with a partner on a high school or college project, and even in your marriage.
People can't agree on everything all the time, and this is true for the partner with whom you want to start a Wisconsin business. This is why creating a partnership agreement is a wise idea.
What is in your agreement?
As in any relationship, you cannot always predict every possible dispute. However, you can prepare for most contingencies by having an over-arching plan to address disagreements and other situations that may threaten the smooth operations of your business and the long-term success of your partnership. Some of the factors your contract can decide include the following:
- How much each of you will contribute financially, in real property and in sweat equity
- How you will separate the responsibilities of the business and who will have final say on critical decisions
- How you will pay yourselves from the profits and how much of the profit will go back into the company
- How you will separate the ownership of tangible property, the rights to intellectual property and the individual use of property owned by the partnership
- How you will handle the finances and who will have authority to make purchasing decisions
- How much debt you will allow the business to carry and whether one partner will need approval from the other to accept more debt
- Whether you will take on additional partners and what to do if one partner should become ill, pass away, or decide to leave the business
You will also want to include in your contract a reasonable course of action for resolving disputes you cannot figure out on your own. These are the matters that can chip away at a partnership and eventually lead to one partner dragging the other through an expensive and emotional lawsuit. Your contract can help minimize that potential by requiring mediation or establishing an advisory board to deal with these disagreements.
Even if the person with whom you are partnering is your closest friend, a contract for your partnership is important. In fact, if you are working with someone you care about, a partnership agreement may be even more valuable since it may help quickly resolve issues that could otherwise grow into disputes that could easily wreck your personal relationship.