Why even friends need a partnership agreement

Why even friends need a partnership agreement

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Having a partner can make starting a business a little less intimidating. You have someone to share all of that hard work and financial investment. If the company succeeds, having a partner might mean that you can expand twice as quickly.

When you know the person you want to go into business with, you may feel even more comfortable with taking what could be a risky step. You may trust that you know the other person and how they behave, but you should still put a partnership agreement in place before the two of you start your new venture.

The agreement protects your investment

Even if you have been friends for years or are family, there’s no guarantee that the other person won’t lie to you, fail to follow through on their promises or steal from the company.

Creating a thorough partnership agreement before you do business helps ensure that both of you understand the expectations and obligations that come with this new company. Ensuring that you agree about what work you will do and how you will run the business helps reduce the risk of operational issues later.

The agreement protects your relationship

If the two of you don’t clarify your needs and hopes for the company, you may eventually find yourselves clashing over the direction of the company or how you divide its profits. Your friendship could fail even if the company succeeds because you feel like you no longer trust or respect each other.

The best way to prevent the failure or success of your business from impacting a relationship that is meaningful to you is to protect both of you with a partnership agreement. Having the right documents in place sets you up for success and minimizes the risks that come with starting a new business.