Are you starting a business with a friend or colleague? You may not want to jump into a partnership arrangement straight away. Maybe you are not sure who will be contributing the most, who will devote the time or money, or maybe you are not sure if you both are committed to the cause.
A lot of businesses start up with friends or colleagues who has complimentary skills. They get caught up in the excitement and don’t want to spend the time or money initially on any type of formal agreement unless and until they have a better idea of how to structure the arrangement and the value of each person’s input.
What can go wrong with no upfront agreement?
You may have a partnership without intending to. If you don’t have a formal agreement but have a ‘verbal’ arrangement, in some circumstances this may be considered a 50/50 partnership, even if you did not intend it.
Difficulty proving ownership. In the event of any disagreement or dispute, trying to prove ownership of the business assets: the idea and concept, the time and investment input, the clients – all may be contentious and difficult to show ownership.
The more time passes, the harder it is. The longer you delay putting something on paper about how you both see the business relationship, the harder it will be to agree past and future contributions.
Is there an alternative to a partnership agreement?
A memorandum of understanding (‘MOU’) is a good alternative to a formal partnership agreement. An MOU can outline your intentions for the business, each person’s involvement and working relationship. It’s a good way to test the water before entering into anything formal which may be difficult to unwind.
But be aware, an MOU has no ‘specific status’ in law. But in the absence of any other type of agreement, a well drafted one can be a very effective way to show intention and evidence of both your agreement in relation to your business.
Read the full article on StartUpSmart here: Is partnership really a good idea?