When two people decide to go into business together, it is important for them to make a contractual agreement. This is usually done in the form of a partnership agreement.
Not only is this agreement an important first step, but it can address important issues or questions that the new business partners may have. What are their roles or titles at the company? How much do they expect to earn? Who gets to make important decisions on the company’s behalf? What are their obligations in terms of job-related duties or working hours?
One other area that this agreement can address is the ownership percentage held by each partner. Here are two reasons why this is so important to put in writing.
1. Holding a vote
First of all, with some decisions, owners of a company need to hold a vote. If there are two owners who both have 50% ownership, they must agree and find a joint solution. But if one person owns 60% of the business, they may have the right to out-vote the other owner – who only holds 40%. The partnership, in this hypothetical case, is not equal.
2. Selling the company
Additionally, owners need to look at their company as an investment that is going to grow over time. They may eventually decide to sell that business. The ownership percentage can help to define how the earnings should be split between the business partners after that sale.
Advance planning can help a business operate smoothly, so those involved need to be sure they know what legal steps to take when starting their partnership.