In this age of entrepreneurs, innovative products are being made available to bridge ‘market gaps’ at an astonishing rate. Unfortunately, many innovators lack the resources necessary to mass-produce their products and make them available to larger markets which, of course, puts a low ceiling on success.
To counter this, sole traders often establish partnerships with other people or entities which enables them to benefit from their respective partners (often) diverse knowledge, skills and resources. However, when this occurs, they can unknowingly put their own business assets and goodwill at considerable risk.
Therefore, if you are thinking, or know anyone thinking, about entering into a partnership make sure they consider the following:
Contributions
What will each partner be contributing to the business at the outset and what will be their respective responsibilities for things that arise in relation to these contributions in the future.
Distributions
How are the partnership’s profits (and/or losses) going to be split?
Ownership
Who owns the respective contributions brought to the Partnership? What if one partner wishes to substitute for another or leave the partnership entirely? How are you going to protect the goodwill and intellectual property of the business if your partner leaves?
Decision-Making
Who will have the day-to-day decision-making power within the partnership? Identify the types of decisions likely to be required and establish understandable methods so that, when a critical decision needs to be made, it can be done so in an agreed fashion thereby improving efficiency and reducing the likelihood of a dispute.
Resolution
Notwithstanding the above, even the best laid plans will not always prevent the manifestation of a dispute. Therefore, the partners should clearly identify exactly how any disputes that arise are to be resolved in a fair and (preferably) cheap way.
Future Proofing
While it is impossible to predict exactly how events will unfold, any agreement must take into account the possibility of unforeseeable scenarios. For example, the unexpected death or critical illness of a partner can throw business operations into disarray. Therefore, the agreement must be sufficiently variable to allow for these circumstances.
Dissolution
Not always, but certainly in most cases, all good things must come to an end. On this basis, any agreement must provide clear direction as the partner’s rights and responsibilities when going in separate directions. This is particularly for the partner who may have initially developed the product where the dissolution process can allow some sort of protection to ensure any relevant intellectual property is protected.
CONCLUSION
By taking the time and utilising a clear and comprehensive partnership agreement before jumping head first into the ‘business bed’ with someone else, most issues can be addressed before they reach the point of ruining relationships or livelihoods.
If you or your organisation require any further information establishing partnerships and preparing partnership agreements, please contact either Rhys Larsen or Graham Dutton from WGC Lawyers on (07) 4046 1196 for advice specific to your circumstances.