When you get married, you expect your wedded bliss to last long after the honeymoon phase. Some couples choose to sign a prenuptial agreement before tying the knot to help solidify their commitment to each other while protecting their individual assets should things go awry.
Like the promises that spouses make to each other, partners forming a business make a similar guarantee. In the event of a new business formation, is important to consult with an attorney specializing in corporate law to create your business “prenup.” This is a formal business agreement that protects all partners from financial or other obligations that may arise from breach of contract.
Business prenups drafted by a corporate lawyer make the following agreements legally binding in the event of any partnership disputes.
How your business will operate and who will manage which tasks on a day-to-day basis should be clearly spelled out. The management agreement should include details about who manages which operations, who makes purchasing decisions, and who handles accounting tasks.
Your partnership agreement should also contain information about voting if there is not one specific partner chosen to manage the business. There are multiple ways to handle voting, which your business attorney will review with you prior to drafting the official contract.
Most companies are designed to grow and expand over time. Even if you have no plans to grow within the initial years of your business, you should plan ahead. An expansion agreement should include specifics on how and when a new partner(s) may be brought into your business, what is required of a new partner to join, and what the process of adding partners will be.
A dissolution agreement should contain specifics that determine under which events your partnership may dissolve, such as upon bankruptcy of a partner. Your business may decide to dissolve the partnership at a specific a date in the future or after specified projects are complete. In some cases, a partner may simply decide they no longer want to remain with the company.
It will also specify how business assets will be distributed when the partnership ends. This may be specified in terms of percentages or fixed amounts per partner.
How your profits and losses will be allocated among partners should be agreed upon and laid out clearly in your partnership agreement. As in a dissolution agreement, partners may agree on equal shares, so that profits and losses are evenly divided, or you may decide upon fixed percentages.
While you expect your partnership to succeed, it is in your best interest to plan for the unknown. Life-changing events may arise in the future, such as a divorce, bankruptcy, or unexpected death that affects the way your business operates. Without a legally binding business partnership agreement, unforeseen circumstances may cause financial devastation after you worked so hard to begin a successful business.
Considering a new business partnership? Be sure to protect your company by choosing K/S Law to draft your partnership agreement. Call us today at (954) 956-7676 or contact us online to learn more about how we can help you protect your assets.