Reasons For Needing A Partnership Agreement
What makes a good partnership? Just like in personal relationships, a new business partnership should have both parties on the same page on most matters. The way to achieve this is through communication, of course. Bad things can happen without any communication in any relationship, since expectations can really be let down. You should not let this happen in any business relationship at all if you want to be successful.
Very serious problems can happen in a business if bad decisions are made by one partner without the others knowledge. Do you see where I’m going with this? Yes, in a business relationship you can also have dire financial consequences when the partners disagree. This is why it pays to have some form of written agreement such as a partnership agreement that is legally setup and signed by both parties. This way most if not all disagreements can be solved by a third party who can act as a mediator and resolve the differences that the partners cannot overcome by themselves. Problems should be totally avoided if agreement is made in advance over the major duties each partner will be responsible for, although it’s tough to think of everything in each case. Either way you can’t go wrong with a business partnership details.
Business partnership agreements are legal documents when signed, and must be taken seriously so that the business can flourish and not get bogged down in petty disputes over things that should not become problems. What are typical disagreements that can tear down good business partnerships? The biggest issues normally arise when the authority of one partner is called into question by another. Disagreeing is one thing, but when one partner takes things into their own hands and makes decisions concerning finances or large purchases, problems will arise. Also the signing of contracts between the partnership business and other businesses, whether for supplies or services that are needed, can result in major problems if one partner is not in agreement. This is why partnership agreements must cover the signing of all third-party contracts so that both partners are required to sign them.
Another major headache over disagreements can be management decisions concerning customer issues, payroll issues, banking decisions, accounting and other finances. In most cases these duties are agreed upon in advance since one partner typically has more expertise in this area. However it must a real partnership in that both must make decisions together that affect the financial stability of the business. This is why partnerships are formed in the first place, so that two skilled minds can make better decisions by agreeing in advance what course of action will be taken to best serve the needs of the business.
I hope anyone that is about to form a partnership with a good friend will think twice before going without a limited partnership agreement. You may think you know this person, but in business things can get very heated quickly when large sums of money are on the line. Remember, you are also more apt to argue vehemently with a person who is your friend, not thinking that it may lead to dissolution of the partnership. The best thing is to sit down and go over all the details first, and decide who will be in charge of certain management decisions, financial decisions, and other critical business decisions.