If you decide to go into business with someone that you know, your first instinct may be to draw up a contract. But your business partner may push back against this idea, saying that it’s unnecessary. They’d rather just start working together unofficially or with a handshake deal.
It is important to have an official partnership agreement in place. Even if you know and trust the other person, it’s still best to use a written contract. Here are a few reasons why.
It lowers the odds of a dispute
For one thing, drafting a partnership agreement forces you both to consider the most important aspects of your business. This can lower the odds of a dispute. The partnership agreement will clearly define your roles within the company and who gets to make specific decisions, for instance, preventing a dispute over those decisions in the future.
It protects your investment
Additionally, both you and your partner may be investing significant time, money and resources in this business. Without a contract, if everything falls apart, you could stand to suffer serious financial losses. Having a contract in place can help to protect this investment so you can just focus on the business without worry.
It answers key questions
Finally, your partnership agreement can answer some of the questions you may have in advance. What steps do you need to take if one person wants to leave the partnership? What is the process for bringing on another partner? How are the two of you going to divide the income that the business earns? These are just a few examples of important things to ask.
As you set up your new business, be sure you know what legal steps to take to draft a partnership agreement and get everything on file correctly.
