My answer to What should be the partnership agreements between founders of a start-up?
Answer by Raad Ahmed:
It’s great that you are thinking of a partnership agreement now instead of waiting for issues to arise in the future. Trust me, there are a lot of startups that gloss over this incredibly important step in the process. While there are a lot of things you can include (many of which have already been provided in other answers), I’ll throw in what I find to be some of the most important points.
Here’s what you should include:
- Dispute resolution—No matter how much you like your partner today, there is bound to be an issue in the future where the two of you simply don’t agree. Instead of waiting on the day to arrive, prepare for it now—it’s almost a given that it will occur. Think of a strategy that works for resolving conflict. You don’t have to head straight to court over a small issue as that wastes considerable time and money. A lot of businesses opt for a mediation clause in their agreement so they can try to solve problems amicably with a bit of guidance.
- Death-This is a bit morbid, but it’s something that you have to think about. What happens if you or your partner passes away? There should be clear buy/sell agreement in place so that the surviving party can deal with the business with minimal issues.
- Division of work—If you go into business with a friend or relative, you may assume everybody will do what they say they will. However, as businesses grow and transform it is easier than you think for people to get confused about their role. You should identify what each person will be responsible for so as to avoid unnecessary conflict.
- Outline financial contribution—Definitely include this. What will each person will contribute whether it is monetary or through “sweat equity.”
- Buyout agreement—While it is likely that everybody is excited about the business today, there may come a time that someone wants out. Clearly define a buyout agreement so you can part ways on good terms.
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