Have You Covered the Partnership Agreement Basics?

By Nina Kaufman, Esq.

Reproduced from my weekly ezine, LexAppeal:


So you’ve decided that a business partnership is for you. And you have the support of your “very silent” partner (that is, your life partner. Now’s the time to make sure that you cover the bases in your partnership agreement.

Sorry to say, but business partnerships have an abysmal failure rate. Higher than the national divorce rate, I might add. One of the major failure factors is not having worked out a partnership agreement and put it in writing. The excuses sing like a common refrain: “But it’s expensive!” “We know each other well – why worry?” “Why focus on the demise of the company? We want it to do well!” The process of putting together a partnership agreement is a key component in your business success, for it encourages (forces) you to come to terms with vital operational issues.

Here are the 4Ms that any basic partnership (or shareholders’ or operating) agreement should address:

  • Management. Who is responsible for which “departments” in your company? Finance? Marketing? Internal operations? How will you make major decisions . . . and resolve stalemates?
  • Money. What capital contributions will be required (when and how much?)?When will draws or salaries be paid? Do the partners have the right to take money out of the business (other than draws)?
  • Mind Matters. Who owns the intellectual property that you create? Are there any pre-existing inventions, ideas, or materials that the partners are “lending” (licensing to the business)?Who gets to use the IP if one of the partners leaves the company?
  • Moving On. There’s an old Native American expression: nothing lasts forever, but the rocks. There could be any number of reasons that a partner needs to leave the company. Maybe she’s become critically ill. Maybe she had to take care of an elderly parent. And, okay, maybe you now can’t stand the sight of each other. Your agreement needs to identify these areas and work out a buyout plan.

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