Tips for Creating a Partnership Agreement in Massachusetts (And the Pitfalls to Avoid in Partnerships)
Some of the most successful startups and entrepreneurship businesses started off as business partnerships – we are talking about retail giants like Hewlett Packard and the world-renowned financiers Kohlberg Kravis Roberts. Why? Well, that’s simple – partnerships mean that partners get to complement their skills, they share in the expenses of the business and capital contributions, including furniture, and there’s also the fact that the partnerships make it possible for the people with the hard cash/ capital to work synergistically with the individual with a grand idea (and ownership rights to intellectual property), all in a bid to create a profitable venture.
But as we all know, shaking hands is not enough if two (or more) people are getting into a partnership. There are essentials that lay the groundwork and the strongest foundations for the success of the partnership.
Today, we look beyond the theory of things by pinpointing some of the things that could end your partnerships. These are the pitfalls you want to avoid at all costs.
Don’t forget that partnerships, like marriages, don’t have the best rapport, with statistics showing that half of all marriages fail in a few years. Stress, ego, money, control, and management are huge issues, and you really don’t want to deal with them.
So, which are these pitfalls that you must avoid?
1. Failing to have a legally binding (written and signed) partnership agreement
One of the biggest mistakes made by entrepreneurs is trusting the words of their friends and family and the ensuing handshakes over drinks, rather than putting the words discussed and agreed upon on paper. While it is a good idea to form some great partnerships, some of the partners you end up with might not have the same idea as you (or vice versa) and this often means that even a good run (business-wise), you may end up losing your friendships and the bonds that brought you together. To avoid any of this from happening, we recommend signing a partnership agreement form.
A partnership agreement is a legally binding and enforceable document that specifies the rules, roles, responsibilities, and relationships among and between the partners. Now, this might sound like an overwhelming legal procedure, but it isn’t. And the good news is that you can start the entire process at the comfort of your home by downloading our free Massachusetts partnership agreement form today.
On top of that, you will find that the content in our sample forms is not only simple and straightforward but also state-specific. It, therefore, means that using our legal partnership agreement forms, you only need to download the form specific to your state then get started with the technicalities applicable to your partnership.
Remember that a partnership agreement (also a business or a general partnership agreement) is the written and signed document that defines every little detail of the partnership business while outlining the responsibilities of the parties involved. Since it’s agreed upon by all the members, this agreement is often the only legal document that can offer reasonable direction in the event of a huge disagreement or a dispute.
Some of the essential areas covered by the partnership agreement include capital contributions, distribution of the profits and losses, dispute resolution, partner termination, acceptance of a new partner, dissolution of the partnership, partners’ authority, whether there should be a non-compete or not, and liability of each partner.
2. Not sharing business expenses
In most cases, partnership structures allow the partners to share in the capital of the partnership and not the expenses. But this shouldn’t be the case. You see, each time you share out your capital contribution in the form of money, property, information, or other resources, you only end up losing your enterprise ability. And though the perfect world would feature upright partners full of integrity and unable to think of taking your gifts and running away with them, the ugly truth is that we live in an imperfect world full of selfish people. So, exercise caution and workout an associative arrangement that allows you to work out the expenses of the business. Such arrangements ensure that the business runs seamlessly, and you won’t feel short-changed.
You could formulate a rule/ guiding principle on this matter in your partnership agreement in Massachusetts, meaning that if some partner acts in contravention to the agreement, you can go back to your rule-book and iron out the disagreement.
3. Partnerships born out of selfish necessities
For example, unwillingness to hire and pay someone, but since you know that you need their skills, you ask them to partner with you. This arrangement is often risky since it leaves you at a vulnerable position where you may end up working against each other, especially when you share in the expenses, duties, and the profits of the business, but one party finds that they are the only liable party for some costs, as outlined in the legal partnership agreement. To avoid this from happening and having to go to court to settle such disagreements, you need to get things straight on your end and hire the skilled person, or even you could work out an independent contractor agreement. Basically, you should never give out/ away from something you don’t have. And before you agree to be a partner, go through the partnership agreement to be sure that it’s favorable to you.
Finally, don’t forget to include an exit strategy. Think of this as your partnership’s prenup. It’s very important, as it guides you when you want to walk away or if a new partner wishes to join the business with you.
At the end of the day, you can create an airtight partnership agreement that works well to its intended end date. So, if you are in Cambridge, Salem, Boston, Worcester, Lowell, Plymouth, Quincy, or any other city in Massachusetts and interested in creating a partnership agreement, you could download our free partnership agreement form here, to get started.