“A business partnership is like a marriage…”
Starting a business can be exciting. Some people can start and operate a business on their own. Others, for various reasons, start a business with friends, family, colleagues or partners.
Regardless of whether you may associate with your mother, brother, neighbor, or essentially a stranger, commemorate your understanding in writing. Have the partners been successful in business without an agreement? The answer is yes.” Is it advisable to do it? The answer is no.” A written document significantly minimizes misunderstandings between partners, and if the partners ultimately decide to go their separate ways, the transition can be much smoother.
HAS shareholders agreement (as it is generally called when a corporation is formed) or a “Partnership Agreement” (in the context of a general or limited partnership). Both terms are used interchangeably in this article.
1. Identify the owners their respective ownership percentage and financial expectations. Clearly establish the name of each of the shareholders/partners and the number of shares or interests that each one owns.
Surprisingly, many companies operate for years without a share certificate (or a member certificate in the case of a limited liability company) being issued. What could happen is that one partner assumes that he has equal ownership in the business, while another partner believes that he owns the majority of the business. Also, be clear about the amount of money each partner is expected to contribute to the business initially and in the future, and how profits and losses will be distributed.
two. Management Affairs. In certain businesses, particularly small start-ups, the owners are involved in their day-to-day management. Therefore, it makes sense to outline the duties and responsibilities of each partner so that all expectations are known.
3. Deciding if ownership interests can be transferred to third parties. This is particularly important for small businesses that are “closely owned” (ie, have no more than five owners). Without this understanding, a partner can transfer his interest in the business to his spouse, his best friend, or some stranger, for that matter. The other partners may not want to do business with someone they don’t know, like, or have a different business philosophy. A shareholder agreement may provide that no transfer of shares or ownership interests is permitted without the consent of the other partners, and may provide that the other partners or the entity may have the first right to purchase the shares or interests that a partner want. sell or transfer (i.e., a right of first refusal).
Four. The effect that the death, disability or retirement of a partner may have on the business. If a partner falls ill for an extended period of time or retires, they may no longer contribute to the business or its operation. An agreement can be structured to stipulate that the shares or ownership interest of said partner must be repurchased by the company or offered to the other partners.
5. Treatment of confidential information. Business owners often gain access to confidential, non-public information, such as inventions, customer information, or marketing strategies. If a partner leaves the business, he can use this confidential information for his benefit unless an agreement is signed that prohibits that partner from doing so. The shareholder agreement must include a clause requiring each partner to keep all non-public business information confidential and not disclose it to any third party other than that of the company; You should be required to return all confidential information to the company.
6. Restrictions on non-compete Avoid any misunderstanding or confusion about whether a partner can enter a similar business if they leave the company. A non-compete clause in a shareholder agreement may provide that a partner may not compete directly or indirectly in the same type of business within a certain mile radius of the company’s location.
These are some key terms related to a partner agreement, but by no means a complete list. What is important to remember is that whatever terms the partners agree to, those terms must be in writing and signed by all partners. In many ways, a business partnership is like a marriage, good communication is key. Failure to communicate effectively and enter into agreements that all parties can live with can lead to a messy divorce.
