PARTNERSHIP THAT WORKS.

Dear Entrepreneur,

Some of the greatest success stories in business have been written by partnerships between two or more entrepreneurs possessing complementary skills. Tech genius and marketing mastermind are a frequent combination e.g. Apple. One partner might see the opportunity to create a new product. Another partner might know a better way to distribute it. A third partner might provide the logistics expertise or industry connections to get the business producing revenues.

It is however common in Nigeria to hear bitter tales of partnerships that have gone wrong leading to skepticism by entrepreneurs on being part of a partnership. Despite the usual tales of woe, with the proper planning and consideration a partnership can be a success as it remains the simplest and least expensive co-owned business arrangement.

The major reason why most partnerships fail is because the parties fail to formally document the relationship by defining each partner’s contributions, obligations, conflict resolution process and other possible “what-if” situations. When you’re in a partnership, it’s highly advisable to have a formal, written partnership agreement as this will ultimately help the long-term well-being of the business. Our article today details essential points an Entrepreneur should note when considering a partnership.

Investopedia defines Partnerships as an arrangement in which two or more individuals share the profits and liabilities of a business venture. Various arrangements are possible: all partners might share liabilities and profits equally, or some partners may have limited liability. Not every partner is necessarily involved in the management and day-to-day operations of the venture. At the inception of a Partnership, it is important for the prospective partners to put the following into perspective and document same in the Partnership Agreement.

• BASICS- Name, Purpose and Duration of the Partnership
• RESPONSIBILITIES, PERFORMANCE AND REMUNERATION- What is each partner’s role? What are each partner’s responsibilities within the company, and what level of performance is expected? Are partners expected to make a full-time commitment to the venture, or are separate business activities permitted? What will be the income of each partner, and how will profits or losses be distributed?
• CONTRIBUTIONS – What will each partner be contributing to the partnership in terms of cash, assets, loans, investments, and/or labor? If a partner loans the company money, what will be the terms or repayment? Will the partners be expected to make additional contributions to the partnership, and if so, how will that be handled?
• WITHDRAWAL OF PARTNERS/ADMISSION OF NEW PARTNERS– What guidelines should be followed if one partner wants to leave the partnership? Will partners be allowed to sell their interests in the business to outsiders? On what grounds can a partner be expelled from the partnership (misconduct, non-performance of duties)? How will new partners be admitted to the partnership? What happens if a partner is incapacitated or dies? Will partners who leave have to sign a non-compete agreement?
• FINANCIAL ARRANGEMENTS- What banking arrangements will be made for the partnership? Which partners will be signatory to the partnership account? Who will be authorized to draw on the partnership’s accounts? How will the books be kept?
• VALUATION- What methods will be used to determine the value of the business in the event of a sale, dissolution, death, disability or withdrawal of a partner?
• DISPUTE RESOLUTION- What methods will be used to settle disputes that can’t be otherwise resolved? What procedures should be used in the event of a tie vote between partners on crucial partnership decisions? If disputes can’t be resolved, is there a mechanism in place for dissolving the partnership?

CONCLUSION

Since a partnership is typically much easier to get into than to get out, it is advisable to ensure absolute clarity from the beginning. It is also advisable to get professional help from a Lawyer to draw up the Partnership Agreement.

The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact a professional.

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