| When you begin a new business with a partner, no | | | | partner a nonvoting interest or choose a deferred |
| matter what the form of the business, you should | | | | compensation arrangement in lieu of an ownership |
| have a "prenuptial agreement" for your business. | | | | position. |
| In a marriage, you cannot predict how long the | | | | How will the profits or losses of the business be |
| relationship will continue and how it will end. The same | | | | divided? This may be according to the percentages of |
| is true in a business context. People do not know if | | | | contribution. It may also entail a preferred amount or a |
| their business partners will leave them for another | | | | guaranteed amount paid to a particular partner before |
| business opportunity, have a problem that interferes | | | | a division of the profits among all partners. |
| with their ability to do their job, or retire or die while still | | | | If the partner is to receive a salary, this should be set |
| in partnership. | | | | forth in a separate employment agreement to show |
| Decide the basics | | | | the amount of the salary and how the salary can be |
| Because you cannot predict the future, it is important | | | | increased where the partner is doing a great job, along |
| to have such an agreement in place once your new | | | | with setting forth his or her duties as an employee. |
| business is formed. | | | | If a partner leaves |
| If you form a corporation, you will want a shareholder | | | | Most of the time these agreements contain a transfer |
| agreement. If you choose to form a limited liability | | | | restriction that states the business has the first option |
| company, you will want an operating agreement. | | | | to buy the interest of a departing partner at a price set |
| In either event, you will want to cover some basic | | | | forth in the contract. |
| principles in your documents. This is true no matter if | | | | In the event that the business does not exercise the |
| your partner is your best friend, your sibling, your | | | | option, or has insufficient assets to pay the price, there |
| parent or otherwise. Many a friendship or family | | | | is usually a secondary option for the remaining |
| relationship has been tested by business problems or | | | | shareholders or partners. |
| the money that flows through a business. | | | | This option can occur when the partner dies or |
| If the issues are discussed and resolved before the | | | | becomes disabled, retires, quits or is fired by the |
| problem arises, the contract will control them. | | | | corporation's board of directors, or the majority of the |
| Either agreement should indicate who will be running | | | | members in the case of a limited liability company. |
| the business. Will there be the standard jobs such as | | | | The price may be determined by an appraisal of the |
| president, vice president, secretary or treasurer, even if | | | | business or set by the board of directors or the |
| the business is a limited liability company? What will | | | | members of the limited liability company. |
| each job entail? Who has the power to terminate the | | | | The price may be simple, based on a complicated |
| relationship? What types of business decisions can be | | | | formula, or an offer that either party may be the buyer |
| made by each officer of the business? Is there a limit | | | | or seller. |
| on how much can be spent by an officer without | | | | How will payment be made, and for how long? That |
| authorization from the board or other members? | | | | depends on what the parties decide. Many times the |
| Money or sweat? | | | | payments are coupled with life insurance, in the case |
| Who will contribute money or other property to the | | | | of a partner's death, and other times, the payments |
| business, and what type of interest will they receive | | | | are made over five years. |
| for their contribution? | | | | As you can tell, each agreement is particular to that |
| There are times when you or your partner may have | | | | specific business. There are numerous questions that |
| money or other assets to contribute to the business. | | | | need to be answered by the business owners so their |
| There may be times where you have a partner with | | | | attorneys can build an agreement that will work for the |
| no money or assets who can only contribute sweat | | | | business, ensuring its long-term success and creating |
| equity. In that event, you may choose to give that | | | | fewer problems for the remaining business owners. |