Partnership agreements may detail investments and business responsibilities. They may outline what decisions each partner makes and what job functions they perform. Addressing practical matters in the early stages of a business partnership can set people up for organizational success. They are much less likely to have future conflict when they have already clarified their expectations and intentions.
In addition to a straightforward partnership agreement, business partners may need to consider negotiating terms for a buy-sell agreement as a means of protecting their company from disputes that could arise in the future.
How buy-sell agreements can help
There are certain scenarios in which continuing to do business jointly may not be reasonable. Medical emergencies with lasting implications, clear violations of fiduciary duty and significant differences in plans for the future of the company are all circumstances that may render continued co-ownership untenable.
A buy-sell agreement is a contract that outlines the requirements for one partner to purchase the other’s interest in the company. Buy-sell agreements may include triggering events, which are special occurrences that must precede an attempt to buy a partner’s interest in the company. They often include standards for business valuation and rules for how partners divide equity in the event of a buyout.
Creating a buy-sell agreement during the early stages of business formation is much like signing a prenuptial agreement. Partners who are on good terms with one another can put reasonable standards in place that can protect them from unnecessary conflict if the relationship sours in the future.
Adding the right terms to a partnership agreement can protect everyone investing in the organization and the business itself. An attorney can be helpful for those hoping to protect their businesses against disruptions and financial setbacks in a buyout scenario.