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Two partnership contracts to sign before opening your doors

On Behalf of | Feb 14, 2023 | Business Formation, Contract Review

When we go into business with a partner, we have high hopes for the venture. But we may have heard horror stories of partnerships gone bad. Infighting and miscommunication can break down trust, cause business slowdowns and ultimately spell the end of the partnership.

Fortunately, we can be proactive from the get-go and execute two important contracts before opening the doors of our partnership: a statement of control and an exit plan.

The statement of control

It might seem like it is only fair for all partners to have equal control over the direction of the business. However, this can cause conflicts when partners disagree to the point where one partner leaves the venture, leaving both the other partners and the business itself on the hook for the fallout.

Instead, consider executing a statement of control. In this contract, one partner will have primary control over business decisions and the running of the company, while the other partners contribute financially to the business.

Voting on business decisions can still be an option, as can delegating duties. But ultimately, conflict can be reduced if all partners agree on who will have the final say. And even if control is split, all partners can agree to share equal compensation from the profits of the business.

The exit plan

Whether or not we execute a statement of control, we might also execute a formal exit plan. This contract states what steps we will take if one partner wants to leave the business.

For example, partners may agree to try to resolve disputes on their own, or even agree that they will mediate disputes in order to keep the business running.

If an exit is inevitable, partners can agree to a buy-sell arrangement. In a buy-sell agreement, the exiting partner’s share in the business is sold to the other partners.

Ultimately, having an exit plan can help ensure all partners are compensated if one of them leaves. The remaining partners continue to have managing and financial control over the business and the executing partner is compensated for relinquishing their shares in the enterprise.

A statement of control and an exit plan are two contracts partners can execute to help resolve complex interpersonal issues before they arise.