In the world of business, partnerships can help your company grow. Many companies form business partnerships to solidify their own companies, as well as those of their partner. It also helps all partners reach out to a larger customer demographic.
Moreover, since 75% of world trade flows indirectly, forming strong business partnerships is important.
However, you must remember some things before you sign on the dotted lines. If you’re unsure what to do before signing a business partnership agreement, this article will help!
Check the capital contribution
Before signing the partnership, you must check the paperwork. Specifically, you must carefully inspect which party has invested the money.
It’s important to know that everyone involved in the partnership has invested something. However, you must also check whether that investment is a loan or a capital investment.
If you don’t know what kind of money has gone into forming the partnership or what profit percentage will be shared by your company, you can later fall into trouble.
Besides each partner’s invested money, you must also notice what proportion of time, energy, and resources each will contribute during the partnership.
Have similar values
Before agreeing to a business partnership, you must also try to understand you and your business partner(s) are all on the same page. Ensure that your vision, mission, and goals align.
After all, there’s a reason why you agreed to partner up with them instead of another company or firm.
While you and your business partner(s) won’t always agree on every single detail, it’s crucial to ensure that the core values are common.
If there are disputes regarding major decisions right from the start, the partnership won’t last long.
Ultimately, you’ll have to summon lawyers, which might escalate quickly. Therefore, make sure that there is an understanding between all companies.
Agree on withdrawal
Any well-written business agreement must always specify the terms and conditions of early withdrawal of one of the founders or partner companies.
For example, if your partner company wishes to quit the agreement early on, then specific questions must be answered.
These questions may include “What will happen to the company’s shares” or “Who will buy them.”
If the partnership is somehow dissolved and the other party initiates it, you must also figure out if you’ll get any compensation from them.
Moreover, know what percentage of votes will actually make it good enough to sell or dissolve the partnership.
Decide the type of partnership
You must also look at the legal business structure before you go ahead with the partnership.
You can choose from either a general partnership, a limited partnership, or a liability partnership.
A general partnership is usually the easiest to set up and follow. There are no fees involved, and you don’t need to file with the state. Unfortunately, the general partnership also provides little to no liability to all the parties involved.
In a limited partnership, only one partner contains unlimited liability while the other one’s assets aren’t tied to the business.
In a liability partnership, both parties have protection and financial responsibilities to the business.
Seek an attorney’s perspective
An attorney is the best choice for a third-person perspective when you’re signing a business partnership.
An attorney will understand if any terms and conditions are being omitted. They will also provide solutions if the partnership doesn’t work out.
If you and your business partner(s) draw up a plan and simply sign on it without consulting any legal body, it can result in a lot of confusion.
Even though the work might feel tedious in the beginning, it’s actually for your own good.
Choose a team that will walk you through all the legal procedures at each step. They must also share unbiased solutions for the benefit of all businesses if there are any issues.
If your business is based in Australia, you must seek one of the A-grade Gold Coast lawyers.
Differentiate the skills
Most companies form business partnerships because they realize their partners complement their strengths.
No business owner is perfect, but when two or more owners get together, they can create something amazing.
Therefore, when drawing up the business partnership agreement, you must also evaluate your business strengths and weaknesses.
Ask your partners to do the same. This way, the responsibilities will be evenly distributed, and there will be no room for confusion.
If all the businesses involved have different talents, it will also prevent conflict between the partners.
Agree on conflict resolution
Small conflicts can be resolved amicably between business partners. However, the larger ones can ruin your and your partner’s business.
So, make it a point to reach a clear conclusion regarding conflict resolution. Discuss whether any major conflicts will be handled by a mediator or through secret binding arbitration.
While nobody wants to discuss these unpleasant terms, they’re still important for the future.
Keep in mind that if an issue is litigated and word goes out, your public image can be affected quite a bit. Moreover, a lawsuit can deplete your finances and energy, making it your last resort.
Put everything in writing
No matter how small or insignificant one detail might be, it’s always a good idea to have it written down.
In today’s world, nothing can be done without proof on paper. A written plan will give the partnership a proper structure and help resolve any sort of misunderstandings that may arise.
Right from the length of the partnership to the profit-sharing charts, all partners must ensure that everything is written and signed properly. If any point is missed, you can always amend and add it later.
Moreover, make sure that all the involved parties give their complete consent verbally and in writing to the details of the contract. You can even record the verbal agreement, of course, with their consent just for insurance purposes.
Over to you
Before signing a business partnership agreement, remember these crucial points. And for more help regarding this matter, consult your corporate lawyer.