When going into business and taking on a partner, it is a good
idea to have a contract/agreement to determine the share of the company
you each own. It also allows you to show and agree on what each of you
will contribute, as well as protecting both of your interests when
working together.
You might be wondering now, how to or what makes a good contract? Well it is really simple. First thing to do is to be clear on every aspect of the business. Something's you may want to make clear are:
1. How much each of you will invest. - This will show what both of you are contributing to the company as well as it will help determine who own what % of the business.
2. When and if payback happens. - Pay back is meaning paying back the initial investment by a partner. Payment should only come if the investor will not own any part of the company when he is paid back in full(plus a little extra for being an investor). If they are to remain part owner of the company then they should recoup their losses through the revenue generated by the business.
3. Who will over see operations of the business. - This is important so that you are clear on who will deal with the day to day issues of the company, such as dealing with the clients etc...
4. Who owns what percentage(%) of the company. - This is a very important part because when decisions have to be made, there has to be a clear vision on who has the final say. This is usually who has the major share in the company, so it is best not to go 50/50 when entering into an agreement, at the most you should go 51/49 at least.
5. Buy out/selling clause.- In case one partner needs to leave the business there should be an option to buy out or sell their percentage off. This should be agreed on by both partners.
Another important part of a contract is to have both partners sign it, along with a witness for each side to sign the contract. This gives an extra method of protection when the contract has to be changed or enforced as there are witnesses that can vouch for each side.
There are many other clauses you can add into a contract to protect yourselves, just make sure there is an agreement signed by both sides before you get into business together. It will save you allot of headaches and protect your interest as well as your business!
You might be wondering now, how to or what makes a good contract? Well it is really simple. First thing to do is to be clear on every aspect of the business. Something's you may want to make clear are:
1. How much each of you will invest. - This will show what both of you are contributing to the company as well as it will help determine who own what % of the business.
2. When and if payback happens. - Pay back is meaning paying back the initial investment by a partner. Payment should only come if the investor will not own any part of the company when he is paid back in full(plus a little extra for being an investor). If they are to remain part owner of the company then they should recoup their losses through the revenue generated by the business.
3. Who will over see operations of the business. - This is important so that you are clear on who will deal with the day to day issues of the company, such as dealing with the clients etc...
4. Who owns what percentage(%) of the company. - This is a very important part because when decisions have to be made, there has to be a clear vision on who has the final say. This is usually who has the major share in the company, so it is best not to go 50/50 when entering into an agreement, at the most you should go 51/49 at least.
5. Buy out/selling clause.- In case one partner needs to leave the business there should be an option to buy out or sell their percentage off. This should be agreed on by both partners.
Another important part of a contract is to have both partners sign it, along with a witness for each side to sign the contract. This gives an extra method of protection when the contract has to be changed or enforced as there are witnesses that can vouch for each side.
There are many other clauses you can add into a contract to protect yourselves, just make sure there is an agreement signed by both sides before you get into business together. It will save you allot of headaches and protect your interest as well as your business!
