You and your business partner met when you were both in college. You’ve now graduated and you want to work together.
Yes, you’re friends. You’re going into this as equals. It feels like you could never run into any legal issues or disagreements.
Don’t let the relationship fool you. Many companies get torn apart by partners who start out as friends and then watch as the relationship changes. Don’t take anything for granted. Draft a legal partnership agreement and get it filed. Don’t wait until you’re at risk of losing your company.
When you make the agreement, be sure it touches on these five critical issues.
1. Financial contributions.
You need to know, officially, how much money you’re expected to put into the start-up. You need to know how much your partner is putting in. You must know how much ownership this buys you. Don’t just head forward with the loose idea that you’re “putting everything” into the company. Define it down to the last cent.
2. Dissolving the business.
Talking with new business owners about dissolving the company is like talking with newlyweds about divorce. You know it’s statistically possible and maybe even likely, but it’s not a fun conversation. That said, make sure your agreement talks about how you can dissolve the company. Remember that you or your partner may want out when the other does not. How will you handle it?
3. What happens if one of you passes away?
Your partner dies in a car accident on the way in to work. What happens? Do you own the company outright? Does he or she want to leave it to heirs? Do you have to work with them, just because your partner says so, even if you think it’s not in the best interests of the company? Or are they just silent partners who own part of the company but can’t make decisions? These are just a few questions that you need to ask.
Additionally, this section may need to address what happens if one of you suffers a disability.
4. How are decisions made?
Making decisions together may come easily at first, but you could run into disagreements down the road. You don’t want one to derail the company or put the two of you at odds. Define who gets to make which decisions, from simple personnel decisions to broad decisions that guide the future of the company.
Don’t take your salary for granted. Don’t assume you get 50 percent of the earnings. Understand write down exactly what you’ll get paid, what your partner will get paid, and how often. Consider how much capital goes back into the company. Additionally, consider the circumstances under which you both can alter your salaries.
Business planning is important. With all of the excitement of starting a company, don’t forget to get the details in order.