Frequently, the primary focus of a partnership agreement is to clarify expectations and obligations. Each partner commits to making certain investments of time and capital. They also clarify what they expect to receive as compensation or what might occur if they eventually sell the business. They may outline their five- and 10-year plans for the business.
However, partnership agreements need to be thorough enough to protect the partners in the event of a sudden decline in their relationship or other complicating factors. Restrictive covenants can be particularly helpful for the protection of a business and the investment of each partner in their organization.
What restrictive covenants are useful?
Partnership agreements frequently feature the same restrictive covenants commonly integrated into employment contracts. Noncompete agreements may prevent a partner from taking a job with a competitor or starting a competing business in the same market for a certain amount of time after leaving the company.
Non-disclosure agreements help ensure the protection of trade secrets by preventing either partner from sharing information without side parties or releasing it to the public. Nonsolicitation agreements can prevent exiting partners from attempting to negotiate business arrangements with the company’s employees, clients or vendors.
Effectively, restrictive covenants help ensure that neither partner takes actions that directly harm the other or the business they started together after exiting their position with the company. They help prevent future conflicts by imposing limitations on conduct while the partners are on good terms with one another.
Integrating the right terms into partnership agreements can reduce the risk of unfair competition and complicated partner disputes that require litigation to resolve. Those starting new business partnerships may need help reviewing a proposed agreement and negotiating appropriately protective terms, and that’s okay.