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A written business agreement is a must
5/15/2012 1:03:00 PM
Question: My cousin has just gotten a patent on an invention and he wants to start producing it, but he doesn’t have any expertise when it comes to manufacturing and marketing; that’s where I come in. However, we are concerned about the legalities and would like to know if SCORE can suggest the best way to proceed.
Answer: In our last column Joyce R. Browning wrote about the things to look for in a business partner, including family members, so do take time to read it in the Verde Independent archives before proceeding with your partnership plans. Once you are sure this will be a good fit, you then need a comprehensive written agreement.
An article by www.Nolo.com, whose mission is to make the legal system work for everyone -- not just lawyers, lists below some of the points partners should include in an agreement:
• Name of the partnership. One of the first things you must do is agree on a name for your partnership.
• Contributions to the partnership. It’s critical that you and your partners work out and record who’s going to contribute cash, property or services to the business before it opens — and what ownership percentage each partner will have. Disagreements over contributions have doomed many promising businesses.
• Allocation of profits, losses and draws. You and your partners may have different ideas about how the money should be divided up and distributed, and each of you will have different financial needs, so this is an area to which you should pay particular attention.
• Partners’ authority. Without an agreement to the contrary, any partner can bind the partnership without the consent of the other partners.
• Partnership decision-making. Although there’s no magic formula or language for divvying up decisions among partners, you’ll head off a lot of trouble if you try to work it out beforehand.
• Management duties. For example, who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your partnership and be sure you’ve got everything covered.
• Admitting new partners. Agreeing on a procedure for admitting new partners will make your lives a lot easier when this issue comes up.
• Withdrawal or death of a partner. At least as important as the rules for admitting new partners to the business are the rules for handling the departure of an owner.
• Resolving disputes. It might benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.
Robby Slaughter, writing for http://maverickpr.wordpress.com, writes, “We establish business partnerships because they make sense. Two companies (or people) offer complimentary products or services, and by working together both believe they can achieve more than they would on their own. The sense that the collaboration is more powerful than working independently is the actual definition of the business buzzword “synergy.” Through partnerships, our productivity increases.
Slaughter continues, “Just because a partnership makes sense today doesn’t mean it’s going to be perfect forever. Not only do the partners need to plan for the future, but they must involve those people in their community affected by the partnership. That might include customers, suppliers or other officials. Get connected with the stakeholders that power your partnership, and make sure you have a roadmap to ensure their future in your agreement.”
Your SCORE counselor can help you develop your business plan and work out the general terms of your agreement and, although your counselor can’t recommend a specific attorney, he or she may be able to guide you in finding a qualified attorney.
If you have business experience and would like to help other small businesses and non-profits succeed, please contact us about becoming a volunteer SCORE counselor. Northern Arizona SCORE: 928-778-7438, Web site, www.scorenaz.org, email firstname.lastname@example.org. Find us on Facebook, twitter, LinkedIn.
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