Having a partner in your business would be exciting. However, without having a proper written partnership agreement, your partner could be turning your business into haywire. Having a partner in an aim to share ideas, risks and obligations and/or gathering resources to build something stronger together is inevitably important. Be assured, avoiding your partnership relationship is positively well-maintained, a customised partnership agreement will assist your business grows smoother and faster in alignment with all potential challenges arise in a business.
Let’s us help you to comprehend the gist essence of the partnership agreement before you signing one!
Obligations and duties of each Partner
To avoid conflicts and clashes of duties assignment, your agreement shall state clearly the duties and obligations of each Partner in the business. For instances, Who is responsible for daily management? Who handles accounting and finances? Who handles promotion or marketing? For each roles and duties, it is unavoidable if it involves two and more Partners to decides and this would not have invoked any issues if each Partner is assigned with specific roles therein the partnership agreement.
Capital Contributions
Every partner must bring something to the table, may it be monetary capital, technique, knowledges, branding as well as physical equipment despite it’s not always equally contributed there amongst. One may invest more money, while another contributes more time, expertise, or assets.
Hence, it is very much advisable to ensure your agreement should clearly emphasize :
Manners and assets that have been contributed by each Partners;
Portions of capitals and/or contribution in kind that have been contributed by each Partners;
Future planning that involves capital top up and/or fund raising should the business may needs additional funding.
Profit and Loss Sharing
It is only to be fair to have Partner who contributes more, would be sharing more profits from the business. Without having a proper written partnership agreement, all such contributed capital will be left as “a guess to be answered” or “a dispute to be answered in court”. Hence, by now you should be aware that having a partnership agreement in your business, can provide a written guarantee as to your rights as a partner to enjoy a defined portion of profits (and losses) as stated therein the valid agreement recognised by the laws of Malaysia.
In the event that your business is growing bright, a well drafted agreement should covers as well the manners of profits made being distributed and/or reinvested for other projects to ensure business is always maintained in best interest of all partners.
Setting Decision-Making Rules
Having to know the practical facts that not all decisions in a business requires the unanimous consent of all partners as some are small and expected to be handled on routine basis, while others can be substantial to the stretch of changing the direction of the business.
In view of the above, your agreement should provides: a) How decisions are made via majority votes or alternatively via unanimous consent of each Partner; b) Categorise instances of decisions that requires majority votes or unanimous consent; c) Specifically assigns specific areas to designated independent officers and/or expert.
Planning an Exit Strategy
It might feel demotivating to crave an exit plan for your business before you and your partners even started the business. However, it is an precious safeguard to think about the end at the beginning as it is an essence to avoid your business falling into a deadlock loop.
Here are some great sample of questions that each partner can discuss before affixing their signature(s) to the partnership agreements:-
(a) What if a partner wants to leave? (b) Can they sell their share to someone else? (c) Do existing partners have the right to buy them out first? (d) What if have someone from outside offers better terms? (e) What if the business having a downturn, and one of the partner wishes to withdraw their capital out? (f) What is the best punitive terms and/or liquidated damages for any partner’s withdrawal?
We have too much to suggest for the above questions and be assured to contact us for more as each business would have their own preferred remedial actions.
On top to the above, exit plans should also cover:
- How the partnership assets are to be divided. - How the partnership debts are settled. - The process of closing the business. - How to deal with the existing contracts that have been entered into.
Preparing for Disputes
Disputes are unavoidable even between your siblings and spouse, hence do not be surprised to encounter and handle disputes amongst partners (who are strangers with no blood ties with you!). Believe or not, even the best partnerships or strongest entity will encounter disagreements as we are all free human thinker. Instead of leaving your hard-earned business to luck, your agreement should clearly outline how disputes will be addressed well in the event of conflict arises.
In Malaysia, there are few options to be referred of which include but not limited to:-
Mediation
Arbitration
Legal action via court proceedings.
Protecting the Business and Intellectual Properties
All efforts put in by each partners shall be protected as sole assets to your business. Any conflict from between partner shall not entitle anyone of them to have sole and private right to the built assets made in your partnership. Hence, we would strongly recommend you to have your own customised partnership agreement to cover the issues that may foreseeable, of which amongst others:-
- Confidentiality clauses - Non-compete/solicitation agreements - Rules about using business information and/or resources - Intellectual Property created in the partnership
Conclusion
It is common to hear most of “small business owner” claiming that their business is too small to have a partnership agreement. However, we would like to emphasize and advise that an agreement to protects interest of all relevant parties who put in effort (whether in kind or in cash) shall not be overlooked. Be assured, simple partnership agreement could save your thousands or millions of dollars or even your whole life of effort spent in the business! Wait no more, please contact us for more!
Malaysia