30 Aug Why a Partnership Agreement Makes Sense
While couples are the most common business buyers we work with, it’s not unusual for two friends or colleagues to join forces to buy or start a business. No matter how much goodwill exists, when money and decision-making are involved, even the strongest relationships can be tested. Addressing roles, ownership, profit sharing, and decision-making — along with exit and wind-down strategies — gives you the advantage of clarity and foresight. It also sets you up for long-term success.
While an Operating Agreement covers many of these topics, it’s worth discussing with your attorney whether it makes sense to further formalize them in a binding Partnership Agreement. Below are some common considerations:
- Ownership and Profit Sharing:
Start with the ownership structure. Who owns what percentage of the business? How will profit be defined? What portion, if any, should be reinvested or held in reserve? - Roles:
Define each partner’s responsibilities clearly. Understanding who does what prevents overlap and confusion while keeping accountability front and center. - Decision-Making:
How will key decisions be made? Will all partners vote, or will responsibilities be divided by area of expertise? Whether day-to-day or strategic, clarity here keeps operations smooth and expectations realistic. - Financial Considerations:
Money is often the source of friction, so outline financial responsibilities in detail. If additional capital is needed, who contributes, and under what terms? - Exit Strategy:
Plan for what happens if one partner wishes to sell, retire, or exit. A well-drafted exit strategy protects both parties and prevents disruption if the partnership changes or dissolves. - Dispute Resolution and Contingencies:
Disagreements happen. Set guidelines for how to handle them — through mediation, arbitration, or even a board of advisors. Addressing these contingencies upfront helps preserve both the relationship and the business.
While it may be tempting to draft your own agreement, working with a lawyer is a wise investment. A legal professional can ensure the document is comprehensive, enforceable, and tailored to your situation. It may take time to create, but a detailed partnership agreement is one of the best ways to prevent misunderstandings and protect the future of your business.
This article was inspired by original materials from Business Brokerage Press and has been adapted for New Mexico business owners by Sam Goldenberg & Associates.
