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Why you need a partnership agreement when starting a business

| May 13, 2020 | Blog |

If you’re starting a business with someone you know and trust, it is still wise to get a partnership agreement in writing. Many people skip this step, and it can cause some serious issues in the future. 

One of the biggest things that the agreement will dictate is what your rights and obligations are if things change. Right now, as you start the company, you can’t imagine that change. But it may happen, and it’s far better to be prepared in advance than to struggle to react to it when it happens. 

For instance, say that you want to keep the business, but your partner wants out. They plan to sell their portion of the company. Suddenly, you have a lot of questions:

  • What is the exact percentage that they own?
  • How much is the company worth and how much is that percentage worth?
  • Are they allowed to sell without your permission? 
  • Do you have a right to buy their portion of the company before anyone else?
  • Are you allowed to approve or deny a third-party buyer? 
  • If someone else joins the company, do you need a new partnership agreement with them?
  • Does your former partner have a right to any physical assets from the company?
  • Is the split going to change the valuation of the company?
  • How fast can your partner move on? Do they have to give you advance notice? 

These are just a handful of the many questions you need to ask. With or without a partnership agreement, it is crucial that you understand your options at a time like this. 

 

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