Your Trusted And Trial-Tested Team

3 important inclusions in a new partnership agreement

On Behalf of | Jan 2, 2024 | Business Law

Starting a new business is an exhilarating experience. People often rush through the process so that a competitor doesn’t corner the market before they do. Many people choose to start new business endeavors with a partner. Partners can provide financial backing or practical support. They may have industry connections or technical knowledge. Partnerships often lead to stronger and more stable organizations. However, any interpersonal relationship is prone to challenges. People’s perspectives can change over time, and disputes between partners can harm the organization that they run together.

A partnership agreement helps establish responsibilities and rights for both partners. The three inclusions below are crucial for most partnership agreements.

Restrictive covenants

If one partner buys out the other, there is a risk of direct competition in the future. The same could be true if a partner leaves the business to take a job elsewhere. They might poach clients or workers from the company they helped form or use information obtained while working there to help a competing organization. Noncompete, non-solicitation and non-disclosure agreements are all restrictive covenants that can help take some of the risk out of a partnership.

Buyout terms

Partners may start a company with the same goals in mind, but their needs and desires may change when their personal circumstances evolve. Many business partners eventually end their cooperation through a buyout where one partner purchases the other’s interest in the company. Setting clear rules for a buyout at the beginning of a partnership is a lot like signing a prenuptial agreement before getting married. It helps ensure that the end of the relationship is amicable instead of chaotic.

Clear financial expectations and work roles

Partnership disputes may arise because one partner doesn’t contribute what the other expects or either partner has unrealistic ideas about how much compensation they should receive when the company starts thriving. It’s crucial for business partners to very clearly outline what each should contribute to the organization and what each may receive from it if the company proves successful.

Those who take the time to negotiate thorough partnership agreements may have an easier time running a business with the help of a partner. Drafting a partnership agreement properly can be as important as finding the right person to partner with when starting a new company.