Planner: Partnership agreement workshop

Here are some ideas for an event to help connect the dots about partnership agreements.

Partnership agreements range in formality from handshakes to hundreds of pages of legalese.

While a handshake won’t hold up in court if a business go off the rails, not every partnership agreement needs to be super-complex. It depends on the size of the company.

They can be as simple as an operating agreement for two people, a partnership agreement for three or more, or a set of corporate by-laws for larger organizations.

But no matter what, something should be in writing, since these documents define roles and responsibilities of the people forming the company. And they lay out rules for day-to-day operations, how those operations continue if someone dies, and what happens if a decision is made to close the company down.

You need:

• A lawyer with deep experience in partnership agreements
• A lawyer with estate planning expertise
• A CPA with tax expertise

This session can be planned as an overview, aimed primarily at sending the message that you’re available to discuss this topic with clients and introduce the experts within your centres of influence.

Or, it can be broken into six sessions that discuss each topic.

Cash – The agreement needs to detail how much each partner invested to get the business off the ground. In cases where one partner has the ideas and builds the team to make the product, and the other provides the cash for operations, this needs to be codified. Or, if both partners are putting in seed money, the agreement must explain what happens if more cash is needed before the company becomes sustainable (and eventually profitable). Options can include the partners fronting more money, seeking investors (private or public), sale of the company, or simply shutting down.

Consensus – When things go badly, partners blame one another for the results. Likewise, when things go well, one partner (or a group of partners) may claim credit. So the agreement should outline how decisions will be made, and how to break ties in the event partners become deadlocked.

Compensation – How will partners get paid? Salary? Dividends? And will there be a payout structure that reimburses the cash each partner initially puts in (this is important in the event of a sale).

Change – What’s the procedure for bringing new partners into the business (or if a partner or partners choose to leave)? How about accommodating new investors? Will the share structure be altered (additional shares issued, non-voting shares created) when partners get married or have children?

Crisis – Nobody wants to think or talk about becoming disabled or dying. Too bad. Customers, clients and suppliers all rely on businesses to serve their needs or provide their livelihoods. So a partnership agreement must cover how a key person will be replaced (including how to pay a replacement’s salary if that person’s loss triggers a revenue drop). Insurance, company trusts and principals’ wills need to be discussed. All partners need to articulate who inherits their shares, and whether heirs will become partners or be treated as arms length owners by the surviving partners.

Closing – Most people won’t work until they die. So a partnership agreement should address how partners will exit the business, or what to do if the company fails or can’t be sold, and has to be shuttered. This section has to cover dissolution of assets and procedures for when a partner leaves over differences about where to take the company.