I have had about a dozen partnership over the years of me doing business. Don't let people stop your dreams when they tell you that partnerships don't work. That's not true! If they are carefully planned and structured. There has to be an operating agreement!
Here are some tips and things you need to consider so you can create a great partnership.
1. What is the business evaluation formula if we decide to sell? Deposit/length of time/interest rate/etc ( This should be a price that dissuades the partner to sell, not rewards him)
2. What if one partner develops a competing product? Does this negate the partnership? I suggest a length of time for a no non compete.
Who owns the product and platform if you dissolve? What happens if one partner dies?
3. Do I have first right of refusal if the other partner wants out? Will the same evaluation formula be used? Historically, you are penalized when leaving prematurely. This always encourages the partnership to remain in place. It keeps each partner from plotting an early exit. Keeps everyone honest.
4. If a cash influx is needed from the partners are you agreeing to bring your % equal to your ownership %? How much time is allotted for your contribution? What is the plan if the partner says I don’t have or do not want to contribute additional capital?
5. How will the profits/proceeds be distributed? This is a big concern. I suggest a % be distributed and a % be reinvested back into the business. Don’t establish a dollar amount, it always changes as the business grows.
6. When will profits be distributed? Monthly/Quarterly/Annually?
Your needs will always be different. A formula for distribution of profits needs to be in place regardless of your needs. Never distribute based on needs of the partner, this will cause hardship and confusion. Distribute on a schedule.
7. What is the job role/responsibilities, of each partner? Write them out.
8. What is the process if the partner falls on hard times and wants to sell? Non elected, forced ( Bankruptcy, divorce, health, etc..) Formula for evaluation/terms/first right?
9. Is there a dispute clause if you reach an impasse? Or, majority owner holds the red button? This could be a phased approach. 1. Owners decide 2. Trusted advisors decide ( predetermined) 3. Arbitration
Where will the partnership be incorporated?
10. There should be a vision/mission/core values.
You cover these big topics and your future life will be much better, I promise.
