Your word is important to you, and your business partner feels the same way. But that doesn’t mean you can operate a business together without a formal agreement. “Handshake deals” can be enforceable, it’s true, but you’re far less likely to end up in a legal dispute with a clear, written agreement between you.
Why is a partnership agreement so important?
While good partnership agreements solidify understanding about how the business relationship will operate, they also look past the present and try to anticipate changes and conflicts that may (or may not) ever come to pass.
For example, a smart partnership agreement addresses things like:
- What happens to a partner’s interest in the business if they die? Does their ownership stake pass to their heirs or do the surviving partners have the right to purchase that stake from the deceased partner’s estate?
- What happens if a partner becomes disabled? A partnership agreement can protect the business by requiring each partner to have disability insurance that will cover their income and benefits without putting a burden on the company.
- What happens if a partner gets married or divorced? If a partner’s business interests are considered marital property, that could disrupt the business greatly and force the remaining partners into business with the spouse. A good agreement can protect the company from those kinds of problems.
- What happens when someone retires? Can they sell their interest in the business at will? Do the other partners have the right to buy them out before anybody else is offered a share?
Asking for a partnership agreement in writing doesn’t mean you don’t trust your partner(s). It just means that you’re smart enough to realize that the future is uncertain and you know to plan ahead. Talk to an attorney here in Newton about the best way to protect everyone’s interests.
