It’s wise to use a contract when starting a business partnership. Not all partners do this, and many simply rely on a handshake deal. However, doing so can lead to significant problems and disputes down the road. A contract helps by defining certain terms and putting things in writing so that both people can work together effectively.
But what should go in that business contract? Below are a few things to consider.
1. Authority within the business
First of all, the roles that each of you have within the business should be defined. What do you have authority over? When do you have to work together to make decisions? How are the duties and responsibilities that you each have different or the same?
2. Ownership percentages and income
You also need to talk about money, and this goes beyond just financial investments that you may make in the business. What ownership percentages are being given to each partner based on that investment? How should income be divided between the two of you? When should money be re-invested in the business to help with sustaining growth?
3. Other potential terms
The two areas above are perhaps the most important, but there are other terms and details to think about. How long is the partnership going to last? What does someone do when they want to leave? How should you resolve any disputes that do arise?
Partnership contracts can be very complex, but they are also incredibly important. If you and your partner are drafting one or running a business together, be sure you understand all of the legal steps you need to take.