How to Draft a Small Business
Partnership Agreement

There are many who prefer getting into partnership with friends, relatives or spouse. While, the idea is not wrong, understanding what a partnership deal takes and work to make it a successful one, is very important. Partnership has both advantages and disadvantages, so, before getting into real business, drafting a small business partnership agreement is a very important step.

There are times when an individual will start a business, make it successful and when it flourishes, induct partners for expanding, or because of personal relationships. However, that's not always advisable. It's important to differentiate business and relationships clearly. Irrespective of what relationship, or how close a person is, small business partnership agreement should be drafted and the deal should be extensively detailed, much like what's done with strangers. Rule of the thumb, is to get an agreement done and never think based on relationship or closeness with a person, it can be a natural partnership without legal binding.

There are many friends who turned foes, and relatives who turned bitter, when problems cropped up in a partnership deal. It's always better to ruminate on the idea of partnership, consider the right candidates, personally draft how to work the partnership and then discuss with the concerned person before coming to mutually agreeable terms. Most importantly, these terms should then be written and added to the small business partnership agreement.

The most important aspects to consider, before and during the time of drafting a small business partnership agreement, include the following:

1. Potential partners should have a common goal, working ethics, drive and strive for success.
2. Consider taking up smaller projects to check compatibility, before entering into a formal partnership. This will give an idea of how well the partners can work with each other.
3. The chosen partners should have everything else in common, but not the caliber, or expertise. For example, one person should be good in Management, while the other should be good in Execution. This way, they are able to complement each other.
4. If all goes well and they decide to take the relationship further professionally, spending a few hours together to sort out professional goals is ideal. They can sit together and draft how to work together and if the ideas match, it's probably good to go ahead.
5. While drafting the agreement, it's important to lay out all the terms clearly and precisely. For example, how to split profits, roles of the partners, induction of new partners, rules for inducting relatives, crisis management, splitting losses, exit management, rights and duties of the partners, duration of partnership, etc. There should be no scope for arguments at a later date.
6. Last but not the least, take a legal opinion and get legal help when drafting the final agreement.

While partnership can often be good, it could also end up on a sour note for the concerned parties. So, taking all aspects under consideration, drafting a clear small business partnership agreement, can resolve many issues and the partnership is more likely to be a fruitful and successful one.