What To Know When Forming a Business Partnership

With the right preparations and enough care, your business partnership can pay off for years to come. However, there is still much you should know when drafting a business contract between partners. In this guide, we’ll walk you through seven key considerations that will help you get the best possible arrangement.

Compatibility

Never rush into a business partnership; you must always guarantee that you and any possible partners share similar goals and values. Otherwise, you might struggle to see eye-to-eye. Many joint arrangements fail because they were incompatible from the start, so make sure you choose a partner with promise.

Your ally should be someone who complements your company’s weaknesses, and would likewise benefit from your help. Above all else, you should build a good relationship with the partner you pick. Without shared values or a healthy rapport, it would be easy for friction to develop between the two organizations.

Type of Arrangement

You and your partner can choose between a general, limited, and limited liability partnership, all of which have plenty to offer. A general partnership is easy to set up and doesn’t require state or filing fees, for example. Carefully consider which of the three would be best for your company.

A limited or limited liability partnership can secure your assets in case the arrangement incurs a major debt. However, the ‘general partner’ in a limited arrangement will still have full liability. In a limited liability partnership, all members can keep their personal assets separate from the firm.

Market Research

As a business leader, you might answer to shareholders or even just your own responsibilities to the company. This means your profit margins will naturally be a factor in any major decision. For this reason, do your research to see if a partnership will bear fruit for your company.

Consulting with your team and other key allies could help you forecast how well this partnership will go. This stage might even highlight red flags with potential partners. Ultimately, you can only make an informed decision once you take the time to assess if this is the right partnership.

Scalability

If you plan for a long-term partnership, you should incorporate this into your company’s strategy going forward. It’s never too early to discuss this with your partner; it might even be a part of the initial negotiations. Alternatively, you can engage new markets to acquire new business partners over time.

Make sure any infrastructure that supports your partnership (such as your IT systems) can grow with your company. You can also add flexible terms to your agreement, such as a renegotiation clause. Keep track of how your partnership affects your KPI metrics to identify a suitable time for expansion.

Conflict Resolution

Few business partnerships are entirely conflict-free. In fact, 45% of these arrangements struggle to maintain their relationship. Identifying how you will resolve any of the common conflicts that emerge can help. Emphasize the importance of open communication and make plans to set up an arbitrator to solve disputes.

If you don’t work to fix conflicts with a business partner in their earliest stages, this could lead to a breakdown in your relationship. Make sure the partnership agreement addresses how you will handle any disputes. In your disagreements, prioritize finding common ground and follow all the agreed-upon structures.

Legal Advice

Your online partnership agreement template will be legally sound as it includes every necessary field. However, it might help to get a lawyer to look over it in case your unique situation adds any issues. Their advice will come at a cost but can ensure your partnership remains fair.

A lawyer’s assistance should also make it easier to negotiate and reach a compromise over any issues or concerns you may have. Never leave anything as a verbal agreement — you must get every matter in writing. Consulting a lawyer will make sure you get the best possible deal.

Drafting an Exit Strategy

When beginning a new business partnership, nobody wants to plan for its dissolution. However, few of these arrangements last forever. Discuss and clearly set out how you intend to divide any joint assets. This includes how to compensate a partner who amicably ends the arrangement.

A clear plan reduces risk, and might even give you the confidence to end a partnership that isn’t working. If you add these provisions to your documents, it also streamlines the actual process of ending the partnership. A good exit strategy ensures there are no disruptions to your operations.

Final Thoughts

Putting together a business partnership, and its full documentation, will naturally spark a number of important questions. The way you navigate this will naturally decide how successful your joint arrangements are. With a comprehensive agreement template and the help of a lawyer, you can easily set yourself up for success.