Friday, June 8, 2012
Grab your Partner Do Si Dos: Legal Checklist Part 5
As you can see my three dogs were able to come to an agreement about sharing the tiny bed. If only it was always this easy for people to agree and work together. Frequently we fall into business with friends and family. Most experts would recommend against this idea. The reality is people do not always agree especially friends and family. Since I know advising against doing business with people you enjoy will be ignored I will tell you how to make it work. The key is communication. A partnership agreement is just a document that reflect the conversations you have had and the decisions you have made about your business. Every partnership must have an agreement in writing. The simple task of putting your agreement into writing ensures that there is a clear understanding of your agreement. This clear understanding will help avoid most of the common problems partners encounter. The document itself can be very simple or excruciatingly detailed. Either is fine as long as all the questions about the business are answered. The purpose of a partnership agreement is to avoid conflict.
The following is a list of some of the questions you and your partner must answer. You will have to add more items to meet all the specific details of your business. Be complete. This is just a start for you to get the ball rolling.
Who owns what?
What are my responsibilities?
What are the responsibilities of the other partners?
How will profits be shared?
How will taxes be paid?
Who will pay the bills?
What type of bookkeeping will we use?
What if I decide I do not want to do this any longer?
If I quit is the business dead? Who keeps the name?
What if I get hurt? What if I can no longer do my part?
What if someone dies?
If we disagree who has final say?
How will vacations work?
Who can sign a contract?
Who has access to bank accounts?
How are decisions made?
Can one partner sell their share?
How do we wind down and close the business?
These are just a few of the questions you and your business partner need to discuss. Include everything in your partnership agreement. Of course if everyone agrees you can change the agreement later. If there is anything you do not understand in the partnership agreement you create you must hire an attorney before you sign the document. A partnership agreement is a contract and should not be taken lightly. There is just one rule you must follow with contracts. Never sign any document you do not understand.
Next week we will discuss your risk factors and talk about doing a liability assessment.