So, you have decided that with a partner by your side, your business will thrive because collaboration is essential for improving business outcomes. Perhaps you already know that two heads are better than one and that is why businesses are better when working together.
Partnership agreements are the formal agreement between two parties to work together towards obtaining mutually beneficial objectives. Like any other type of partnership, a business partnership fosters collaboration, longevity, and development opportunities. Yet, a strategic partnership between two businesses needs to be in writing for secure and mutually beneficial collaboration.
Such partnerships can help your business in plenty of ways including offering access to additional resources, giving your business a competitive edge, and helping your business to reach a new market. Read on to find out what a strategic partnership should contain before you tie the knot and sign it.
1. Percentage of ownership
The percentage of ownership is vital in the strategic partnership and should be the first one to consider before you start writing the legal document. The percentage of ownership needs to be clearly known by all parties involved in case there will be some future changes with regard to ownership of the business. For example, if you and your partner decide to sell your business, both of you need to know what you will get at the end.
You and your partner may feel enthusiastic at the beginning of your collaboration. It may be impossible for you to imagine a conflict popping out leading to disputes over the partnership. However, in reality, like any other type of partnership, sometimes things can go wrong. Thus, knowing just how much of the business each of you owns will help you avoid any potential legal battles in case a conflict arises during your collaboration.
2. Contribution of each partner
One of the most critical elements which need to be included in the partnership document is the contribution of each partner. It is important to clearly lay out how much each partner will contribute to the progress of the partnership.
In strategic partnerships, some partners are active while others are passive. This means that the contribution may not be equal in terms of the resources offered. While one partner may agree to give a solid financial backing throughout the partnership but do no or very little work, the other partner may contribute to the progress with knowledge, customers, equipment, skills, or time invested. Either way, this element needs to be clearly stated in the document to avoid future disagreements over the contribution of each party.
3. The distribution of the profit and loss
Another subject that partners need to agree on is the division of profits and losses according to the percentage of ownership they have agreed upon. On the other hand, the parties can agree to divide the profits and losses equally regardless of their percentage interest in the business.
All partners might have a different idea and perspective of how the profits should be distributed among all partners. It is important to know right from the beginning that all partners are on the same page regarding their financial expectations from the partnership. This will also ensure that there won’t be any future conflicts over the financial claims of any of the participants.
Decision making and mediation of disputes
At the beginning of the strategical partnership, all parties involved are usually enthusiastic when fantasizing about the benefits of their collaboration. They rarely take into consideration that conflicts or disputes may arise throughout the partnership. This is why having a written legal document of the partnership is essential in case of potential future conflicts.
The decision-making element is simply the most important one to prevent disputes from arising. The legal agreement must define exactly how the most important decisions for the business will be made. Whether the decision-making responsibility will be held by only one of the partners or there will be a voting system that involves all parties, this element needs to be clearly stated in the document and agreed upon by all parties.
No one wants to think about disputes but it is essential to do it. If things go wrong between the partners, the legal agreement must determine how the conflicts will be handled.
4. Partnership’s length
Before you tie the knot for a strategic partnership, you need to know exactly how long the collaboration with your partners will last. Often, the length of the partnership isn’t specified in the partnership document because all parties agree that the business operations should continue for an unspecified period of time.
Sometimes the length is determined in specific milestones or a certain amount of time. For example, if the mutually beneficial objectives have been reached by all parties involved, the partnership can dissolve or be revised. However, when the time frame is specified in the legal document of the partnership, the partners need to continue to collaborate despite achieving their goals.
5. Admitting new partners
Admitting new partners in the strategical partnership can be a possible scenario once you decide that your business needs new development opportunities. If this issue comes to reality, the partners need to agree on a procedure to admit new partners. This can include a voting system that all parties must agree with.
6. Death or withdrawal of one of the partners
In all types of partnerships, the unexpected can happen to lead to some critical situations for the business. It may be the death of one of the partners or the withdrawal caused by a multitude of reasons.
All parties involved should know how to handle these possible scenarios in case they will come to reality. A reasonable procedure for all parties involved can help in addressing critical situations in the eventuality that they become real.
7. Make it a legal document
In order for the partnership to become a legal document, each partner needs to get a clear understanding of all the elements it contains and to sign it. Martin Johnson, a senior writer at Studicus explains that “ When drawing up a partnership agreement, using legal English to write all elements of the document is essential to leave no shades of gray and to ensure that all parties understand the conditions and requirements”. However, make sure everyone understands all the terms. Legalese can be difficult to understand, and you don’t want to have misunderstandings stemming from the fact that someone confused a legal term.
8. How to craft the partnership agreement
The strategic business partnership needs to be in writing for secure and mutually beneficial collaboration. The preparation of the legal document of the partnership is a very important step towards a flourishing collaboration.
The legal agreement must outline all the details of the partnership to prevent future conflicts, disagreements, and potential legal battles. The content of the agreement is the most essential aspect to provide the legal proof of the fact that all parties have agreed upon all the conditions and requirements. When crafting your partnership agreement, for comprehensive and legally correct language, you can use tools such as TrustMyPaper, Copyscape, and GrabMyEssay.
Editing your partnership agreement can be the most difficult part to ensure 100% mistake-free content. You can use tools such as Grammarly or HemingwayApp to check the content for any spelling, grammar, or style mistakes.
A business partnership can help all parties involved to achieve their goals and reach success. However, the legal agreement of the partnership must outline all the details in order to avoid any future disputes or conflicts that can alter the collaboration.