An ounce of prevention, they say, is worth a pound of cure. That’s true in heading off marital strife and it’s true in preventing partnership disputes. Perhaps, not surprisingly, the two have many similarities.
In many ways a business partnership is like a marriage. Business partners frequently spend countless hours together, they are invested in the success of the same things, and they must figure out ways to resolve disputes or the relationship could suffer or even end.
Head off haggling before it happens
Like the most successful marriages, business partnerships rely on clear and continuous communication between partners to remain strong. Differences between partners are inevitable, but if the issues in dispute have been thoroughly discussed ahead of time, the differences will not have come out of nowhere, and they shouldn’t have the power to dismantle the partnership.
Business partners often argue about the same things that married couples argue about: money and how it’s spent, or how the business (or in the case of a marriage, the household) is run. In business, careful attention to detail upfront – when partnership agreements are being drafted – can help prevent costly litigation later.
Smartly written partnership agreements address:
- A hierarchy of investments as the business grows
- What constitutes valid company expenses
- Guidelines for profit distribution
- Partners’ rights regarding leaving shares to beneficiaries
- Partnership buyouts
People enter into partnerships with a wide range of expectations. Just as spouses in a marriage may agree that each will handle certain responsibilities – child care, earning an income, etc. – business partners may have varying interests in how involved they want to be with daily operations. As long as that is understood and agreed to upfront, things should be OK.
Also, partners may enter into a situation expecting to share duties equally only to discover that one is more capable and interested than the other in devoting the time necessary to run the business. Business agreements that were created at launch can be amended to address changed circumstances. For example, it may be agreed that one partner receives a regular salary in addition to profits.
Understanding what should be included in a partnership agreement when you draw them up will stave off many disputes and provide steps to solving those that do occur. Enlisting guidance of a knowledgeable business formation law firm is one of the smartest choices that business partners can make.