Partnerships are just like every other business relationship you have: you need to put them in writing. Of course, one of the well-known benefits of putting business partnerships in writing is determining the financial aspects: how shares will be split amongst shareholders or how profits and losses will be divided amongst partners, for instance. But having a written agreement with your business partners can have many other upsides. Here are 4 reasons why your relationship with your partners should be solidified with a written agreement.
Of course, please take this as legal information and not legal advice. If you have any questions regarding business partnerships, send me an email at info@artylaw.ca.
#1 To determine what to do if your partner wants to leave the business
Unfortunately, this happens more often than you think. Business partnerships end, the same way other relationships do. Keeping that in mind, it’s always better to plan for the end when the relationship between you and your partners is still healthy.
When thinking about putting together an agreement, it’s important to figure out how you want the leaving partner’s shares to be handled. Can they be sold to a third party? Does the partner have to offer them to the other shareholders before attempting a sale to a third party? What happens with the intellectual property that has been created (such as the company’s name)? Those are all elements that need to be in such an agreement.
#2 To protect your business’ future
Alright, your partner wants to leave. You’ve made peace with that decision, but your business doesn’t stop working in the meantime. Will you be keeping the client list? Will your ex-business partner be able to contact them? Can he start another business in the exact same field as yours? What about your current employees? Your written agreement between you and your partner needs to address these questions. In many cases, adding a non-solicitation and non-compete clause could be a good idea.
#3 To plan for unfortunate events like death or invalidity
When getting an agreement drafted with your partners, you want to make sure you think about being ready for unfortunate events such as death or invalidity. If one of your partners is not able to work for a certain period of time, you need to figure out how you will be handling it. How long can a partner be invalid before they are forced to sell their shares? Will they be receiving a salary for a certain period of time? In case of death, what will you do with the shares? Can the heirs become shareholders? This is when you’ll want to think about purchasing a life insurance policy that will cover your partners’ lives.
#4 To determine where and how disputes will be resolved
As with any other agreement, you want to determine how and where disputes will be handled before they happen. Mediation, arbitration or actually court proceedings are all legitimate options.
If you have any additional legal questions you would like to ask me regarding business partnerships, do not hesitate to send me an email at info@artylaw.ca or click on the link below to schedule a consultation.