Key Points to Consider When Entering a Business Partnership
A business partnership is very much like a marriage. At the beginning, everyone is on their best behavior, the sky is always blue, and everything is rosy with no troubles and no concerns.
That is true right up until the first challenge arrives. But imagine a legal partnership where you find you want to take very different. approaches to a specific challenge your business faces? That is why having the proper partnership agreement in place before trouble arises is so important.
Partnerships are a common form of business today, and for good reason. Pooling skills, knowledge, and financial assets can be incredibly beneficial for many of us, and in many cases, a business would not be viable without such a partnership. However, partnerships also have their own pitfalls, it is never easy to work with others as there will always be different views.
That means there is a lot to think about before entering any business partnership, some of them involve the legal aspects of any partnership, which we will talk about later, but before you get as far as that, there are things to think about first. The most important one is about you, and here you need to be honest…
Can you accept someone else having a say in every aspect of your business?
It may sound a little odd, but it is really important. This is especially true if you are used to running a business yourself without anyone else. It can be a big step to hand over some of that control to others, and many find they are not really ready for it. Make sure you are thinking over all cons and pros before signing a business partnership agreement.
Then consider your potential partners - do you know enough about them?
Do they have the skills, knowledge or whatever is required to add to the business as you expect them to do? Be certain of all of this before considering a partnership. Think about what you want the legal partnership to achieve, what each of you, however many partners there may be, is going to contribute and how that will impact the business and its goals. The worst thing that can happen in the early days of a business is for the team to lose focus on their goals because of internal friction between the team members.
Once all of that is done, and you know what you want from the business partnership, and that the people involved have the abilities needed to contribute as expected, then it is time to think about the structure of the business partnership agreement. It is important to get the partnership contract all sorted and in place well before the business itself is set up and the operation begins. This is because the legal issues can be remedied early before business itself complicates the process and costs more money and hassle to resolve.
A business partnership is very much like a marriage
In the beginning, everyone is on their best behavior, in life and wanting to impress the other, the sky is always blue, and everything is rosy with no troubles and no concerns. That is true right up until the first challenge arrives, because when we are under pressure, that is when our true selves are revealed, and we can’t pretend there is nothing wrong. In a marriage, this is where compromise and understanding come in, and you work together to overcome things.
But imagine a legal partnership where you find you want to take very different approaches to a specific challenge your business faces? It can be disastrous if you have no idea how to deal with the conflict, who has authority and so on. By the time such disagreements are sorted out, the business could be finished before it ever got started. That is why having the proper partnership agreement in place before trouble arises is so important.
You don’t want to underestimate the importance of mutual understanding before entering legal partnerships in business. But you can make sure you avoid this problem.
To build your business partnership, take the questions below and obtain answers from everyone involved in the partnership
In this way you can create a base understanding that you all agree on, and have it drawn up into a legal contract by your legal team afterwards.
Ownership & Contributions
Percentage.
Duties.
Salary for partners.
Monetary/ concept/ experience/ software/ equipment/ connections/ execution, etc.
Allocation of profits and losses
Will partners be permitted to take drawings in the first 3-5 years? If yes, what exact date?
What would be the portion allocated for re-investment in growth of the business on an annual basis?
Making Decisions
Process and assignments, who decides what?
HR/ Marketing/ Sales/ Finance/ Banking
Day-to-day management and long-term decisions
Who gets the last say?
Banking
Banking transactions, signature on the accounts.
Banking facilities.
Loans.
Death or Exit of a Partner
What happens if one partner dies or wants to leave the partnership?
How and when do you pay off the pending profits to the family?
Who buys the first level shares?
At what price?
How to agree on new onboarding shareholder?
Retirement provisions.
Due diligence for onboarding new partner.
Disputes
No competition clause. Limitation of participating in similar or same type of business during owning shares of the company and min 5 years after exit.
Trade secrets.
How you’ll handle disputes?
Where?
With this prepared in advance, you have a working solution for any challenges before you reach them, saving time, money and hassle, allowing you all to focus on the important job of ensuring the success of your business itself.
If you are looking to take your business partnership to the next level or a company registration in Dubai, contact our team of experts right away.
