Tips for writing a long-lasting Partnership Agreement

Here are a couple of useful tips you can find to be helpful for your current or future business partnership. Very often, I keep hearing the same old story over and over again. Wait, we are like brothers, we are the best buddies, we don't need a partnership agreement. We are happy just the way we are right now. My answer is that being in a partnership is just like being in a marriage. If everything is OK, you won't mind signing an additional piece of paper. Right? The same applies to a partnership agreement. You can live and work happily ever after with your partner or partners with no need to ever see your partnership agreement in action, or you may be extremely grateful for a piece of paper saving your investment and ownership. So, let me begin.

Don't worry about the form rather focus on the content

When it comes to the law itself, it just couldn't possibly care less about your partnership agreement's form, as long as it is properly signed and verified. This means that you can download a free template from the Net and adjust it to suit you. You can hire a lawyer or a paralegal to do it for you. Or eventually, you can write it yourself from A to Z, the way you like it. Either way, it's all the same, your partnership agreement will do its job of protecting you regardless of its form. A thing worth remembering.

The worst case scenario comes the first NOT the last

The reason you are creating a partnership agreement in the first place is to protect the interests and ownership of parties in case something goes wrong. You need to go through the worst case scenario with your partner. There's no other way to do it. At the same time, this can be an excellent test for your partnership. Speaking openly about the potential problems can only strengthen your business relationship. So, don't worry about it. Just make sure you write clearly a set of paragraphs regulating fairly and transparently what's going to happen if one of the partners decides to terminate the partnership, or he becomes incapable of participating in a case of death or illnesses, or he works against the interests of your partnership, and similar.

Make a precise list of individual obligations and rights

The list of obligation and rights assigned to every partner is the heart and soul of your partnership agreement. In addition, this is the best way to prevent any future misunderstandings and conflicts between the partners. The most common reason for a partnership to be jeopardized or terminated is the unclear situation regarding who is in charge for the certain line of work and duty, including the specific rights derived from the partnership. The things may change regarding your mutual business, and you may find yourself facing a problem who is doing what under the new circumstances. This section can also prevent the unfair treatment where one partner has to do more work or invest more than other partner or partners.

Partnership is a legal entity with its own obligations and rights

Very often the partners forget that a partnership can't exist without an agreement. Without it we are talking about a friendship, rather than a partnership with all legal and financial obligations and consequences. This means that partnership can have some obligations reserved only to itself as a legal entity. This sounds a little bit confusing, but the important thing for you to remember is that there are responsibilities you can accept as a partner, and there are some responsibilities reserved exclusively for a partnership, which can't be shared on a personal level. This is actually a good news for you. Why? Well, you certainly don't want to be held responsible for some wrong doings of your partner, do you? This section is supposed to protect you from these unwanted events.

NDA and Non-Compete Clause

You don't have to but I strongly advise you to include these clauses in your partnership agreement. Why? Well, if one of the partners decides to leave the partnership and wants to do some kind of a similar business in the future, this is the only way to protect the interests of the remaining partners. As simple as that. So, be careful about the time limit associated with these clauses and particularly the amounts you plan to include as a compensation for your agreement's breaches.

Management and voting rights

These things should be a part of your list of obligations. However, as you might have guessed they are extremely important. Therefore, it is a wise choice to give them a special place in your partnership agreement. When it comes to important decisions that influence the very future of your partnership relationship, your situation with the partner has to be perfectly clear. Now, imagine a situation where more than two partners are involved. This makes a perfect sense to regulate the voting rights, doesn't it?

New partners and investors

It's quite possible that at some point in time you will find new partners to join or new investors to support your business. This eventuality has to be regulated properly with your partnership agreement. Discuss these scenarios with your partner. What will be the legal situation and position of new partners in your partnership? Also, how the potential investment could influence your partnership? Either you will have to include this section in your existing agreement or create a new one when new partners or investors join.

Termination of partnership and jurisdiction

Finally, you have to create a list of reasons that can lead to the termination of your partnership. What are the consequences of termination for your legal and financial situation? What is going to happen with your assets, intellectual property, and similar? Very often in the IT world, the partners can be located in different countries and legal systems. That's why it is very important to decide which legal system and court are going to be in charge of any potential dispute between you and your partners.

Final tip

Remember that you need a partnership agreement if you want to work in a partnership relationship. Otherwise, from the legal point of view, you are nothing more that a couple of friends doing business together. It's definitely a better solution to have this piece of paper written and signed, just in case. Professional partners with good intentions will certainly have nothing against signing one. Right?