We’ve talked in previous articles about the practical benefits of getting a prenuptial agreement before entering into marriage. A matrimonial partnership and a business partnership have more in common than you might think. You may enter into both partnerships full of optimism, expecting them to last forever. And in both cases, it helps to iron out conflict-raising practicalities ahead of time.
In this post, we discuss some issues you and your business partner should resolve in your “business prenup”—i.e., your partnership agreement—before going into business together:
First, it’s important to be clear on what percentage of the business each partner owns. It’s not as cut and dry as calculating how much money each partner contributed from the start. For example, you may decide that a partner who puts up no cash but works at the business full-time deserves greater ownership than a silent partner who provides most of the funding. It’s important to put these divisions in writing from the start.
In addition, it’s worthwhile to answer the following questions:
- Will profits be allocated to each partner according to their percentage of ownership, or in another manner?
- How will you resolve disputes?
- Who will be involved in business decisions, and how will they be made?
- What are the financial implications if you stop working together?
- What are the financial implications if one partner dies?
- How will the company be valued?
- How will each partner—or their heirs—get paid?
- How will business ownership be affected in the event of a partner’s divorce?
As with a romantic partnership, a business partnership can be complicated. Anticipating hurdles before they arise and mapping out resolutions can be an extremely effective way of avoiding irreconcilable differences down the road. Consulting with an experienced business law attorney is a good first step.