If you are starting a business with your friend surely a written agreement defining your business relationship is unnecessary. After all he has watched your children, stood next to you at your wedding, sat up late with you through college finals, so what could possibly go wrong?
Not so fast.
Even though a partnership agreement, if that is the legal entity you decide to form, is not necessary to start a business, it is good advice to write down the parameters of your business relationship, even if that partner is your best friend.
Partnership agreements deal with numerous decisions upfront and help you and your new partner both think about and deal head on with the issues of a business relationship that may not have occurred to either of you as friends. You can decide, in writing, how all allocation of profits and losses will occur, how the partnership will make decisions, divide up management duties, discuss the possibility of admitting new partners in the future and lay out terms to wind up business if things do not go so well.
By deciding these issues before-hand, both members of a new venture will be fully aware of exactly what to expect, and how to handle the wide variety of issues that come at you every day in a new business. Having these decisions in writing also avoids the possibility of future disputes.
Agreements do not have to be complex, or expensive to craft. It can be simple and clearly worded and include as much or as the little as you and your business partner want to address. It is, of course, malleable and should be revised as both your circumstances and business opportunities change.
But partnership agreements and other business agreements not only preempt the possibility of litigation when disputes arise among business owners. In the sad event your partner dies, a pre-determined buyout or succession plan ensures the business will continue after your partner is gone. Not having to deal with these big decisions because you addressed them in advance will not only keep your doors open, but perhaps make dealing with the loss of your friend a bit easier.
So just because you trust your new partner- and trust them you must – and have a long and affectionate past with him doesn’t mean that a business agreement between you is frivolous. Quite to the contrary – it should be part of your business plan as you begin any new venture – rather than a negative or unpleasant conversation. In fact a written agreement between friends, now business partners, could end up saving not only your friendship, but keep the business alive for future generations!
Bergmann & Good is well positioned to both counsel you on the necessary terms for the form of entity best suited for you. Call us if you would like to learn more. It’s much less expensive to be structured correctly as you start your venture than calling because your former friend and partner has sued you and suddenly you need a lawyer.