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A perfect partnership deserves a plan

Many people flinch when someone suggests having a prenuptial agreement. To some, settling marital disputes before they happen douses the spontaneity and romance and makes a wedding seem like a business arrangement. However, those going into business may have the same reservations when someone recommends a partnership agreement. Nevertheless, such an agreement may make a difference in the success and longevity of your business.

Preempting a meltdown

A partnership agreement is simply a way of hammering out the most common concerns that many joint-venture businesses face. A few of the questions you may wish to discuss with your partner include the following:

  • How will you get paid? Coming to an agreement about salaries will be important. You may base your pay on the financial contributions or workload of each partner, among other factors.
  • How will you divide the profits? Your agreement should stipulate when and how investments will be repaid and how often you and your partner may draw from the profits.
  • How will each of you contribute to the business? If you are a people person and your partner has a head for numbers, you may divide the responsibilities according to your respective talents.
  • How much power will each partner carry? Will one of you have authority to take out a loan or make personnel decisions without the other's approval?
  • How will you handle disputes? Your agreement in this area can save the time and money you might otherwise have to spend in court.
  • How will the partnership end? Difficult as it may be to think about, there may come a time when one of you wants out, becomes ill or dies.

Having these difficult questions out in the open at the early stages of your business will clear the air and give you and your partner a chance to work them out while your partnership is fresh and your options are plentiful. Waiting until a crisis or conflict arises means you may be making these crucial decisions under pressure.

Time spent in preparation is rarely wasted

While you and your partner may have exciting ideas for the direction of your new business, reality is bound to set in. The economy will fluctuate, vendors will change, personal commitments will intrude and business philosophies will clash. None of these has to mean the end of your partnership if you consider them ahead of time and make a plan for dealing with them.

Creating an airtight partnership agreement is the first step in protecting your business from those twists and turns life may offer. Making the most of legal counsel as you create your document will improve the chances that you and your partner will be able to manage common business disagreements with dignity and protect the company you have worked hard to build.

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