Business Relationship Agreements

Many people who enter into business relationships feel that things will never sour between them, but just like personal relationships, business partners have their ups and downs too. Before you enter into any business Relationship, create an agreement to protect your business and personal interests. So, what exactly is a business relationship agreement and what should they include?

What Is A Business Relationship Agreement?

A business Relationship agreement is a type of contract that exists between people who enter into business together. This applies whether the relationship is that of partners, co-venturers, shareholders in a corporation or members of a limited liability company (LLC). This contract lays out the conditions and terms of a business relationship between partners. These agreements plan for situations that may arise that can cause change, confusion, or disagreement. Plus, they establish reliability, trust, honesty, and understanding in your business Relationship.

An attorney can help you draft an agreement and help answer any questions that you may have about business law and the services that an attorney can assist with. You may feel that hiring an attorney is an expense you can’t afford, but DIY contracts may not legally protect you or reflect accurately what you were trying to convey. It can lead to a more expensive legal conundrum.

Here are some reasons why all Relationships should have an agreement from the start:

• Avoid Tax Issues

  Spelling out the tax status of your Relationship illustrates that your business is professional and distributing profits using legal accounting and tax practices.

• Define Roles and Responsibilities

  Clearly labeling each partner’s responsibilities and roles is crucial for a successful business and helps with the decision-making process. How do these responsibilities and roles change? What are each partner’s specific roles and responsibilities?

• Set Out the Circumstances for Accepting New Partners

  Decide in what instances that you’ll agree to accept new partners.

• Avoid Liability and Legal Problems

  Clearly articulating the liability of each partner and the liability of other partners when a legal or liability problem arises with one business partner.

• Spell Out How to Deal with Issues in the Relationship

  Issues could include non-compete agreements and conflict of interests.

• Help Solve Disputes Easily

  Describing how disputes will be handled is also critical and helps solve issues should they arise faster. Who pays and for what? Is arbitration possible? What is the responsibility of the parties involved in the dispute?

• Set Rules so that You Don’t Have to Use the State Laws by Default

  Many times, if no formal agreement exists, you’re forced to fall back on the default state laws which may not always protect you as well.

• Set Out the Circumstances for Accepting New Partners

  Decide in what instances that you’ll agree to accept new partners.

• Set Out the Circumstances for Withdrawal or Death of Partner(s)

  Decide what the terms shall be under such circumstances.

Here Are Essential Things That Every Relationship Agreement Should Have

There are several things that every agreement needs. First, you need to allocate profits as well as losses. Will you distribute them in relation to the proportion of the partner’s ownership percentage? Unless otherwise expressed this is the way it’s usually handled.

It would help if you also had a record showing what percentage of the business each partner contributed before it opened. One partner may have invested sweat equity while the other may have invested a significant amount of cash. Perhaps, the partner providing the full-time work in the business and not the cash will get a more significant percentage of the profits.

It would also be a good idea to define what happens when one of the partners dies or wishes to sever the Relationship. For this part, you would need to include a buy/sell agreement. Also, spell out who can bind the Relationship or what type of consent partners must obtain before they obligate the entire company.

These aspects are just a few things to consider when entering into a business Relationship. Remember to consult an attorney for your specific business situation. Give us a call at 954-796-9600 for all your business legal matters.