Partnership agreements imply the signing of internal business contracts containing certain rules and approaches to doing business for all partner parties. In fact, this is a mandatory document in partner business models that determines the distribution of labor obligations, property, investments, income, and expenses.
Below we will discuss the key aspects that should be considered in this type of agreement, as well as tell you where you can find a reliable partner other than wasting time looking for those in the startups directory.
What Types of Partnership Agreements Can Be in Startups?
Partnership agreements are official documents that anticipate all situations that may occur during joint work on a startup and describe the obligations of startup partners and their actions that must be performed in each of them. Thus, a startup gets the opportunity to develop continuously, without the time costs that are typical for cases where none of the parties knows how to act in a specific situation. There are three main types of partnership agreements:
- general: with this type of partnership, each of the parties has the same shares in relation to obligations, income from a startup, and assets used for its implementation;
- limited: this type of agreement implies the limitation of obligations and areas of responsibility for partners, depending on the size of their investment in the project. Thus, those who spend more money on a project have more “voting power” compared to those who invest less. At the same time, the degree of responsibility of the former is greater, which means that in the case of negative events associated with the implementation of the project, they will incur large costs;
- with limited liability: such startup partnership agreements describe the areas of responsibility of each of the partners. At the same time, the shares of profit from a startup for each of the partners will be the same.
At the same time, regardless of whether they belong to a specific type of startup partnerships, agreements can be used by partners as a roadmap to eliminate the annoyances and delineate responsibility for performing tasks related to the implementation of a startup.
Key Points You Should Consider When Drafting Partnership Agreements
To get the most startup benefits, you should include the following elements in your partnership agreements:
- startup name;
- the goals you need to achieve with the startup;
- information about startup partners (names, contact details);
- startup assets with a description of the size of the shares contributed by each of the partners;
- the percentage of profits and losses that each of the partners will receive or, accordingly, incur;
- governance and voting obligations inherent in each of the partners;
- rules for joining new or excluding existing partners (it is especially important here to provide rules for both voluntarily leaving partners, and for those who do not want to leave the project of their own free will);
- consistent actions to liquidate a startup;
- rules relating to the taxation of each of the partners;
- instructions related to the death or disability of each of the startup partners (this item can be described differently for each of the partners).
Final Thoughts
As you can see, partnership agreements are a kind of formalization of the relationship between program startup partners, which allows them to predict all sorts of ups and downs that are typical for each business for each of its parties.