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[Music] [Music] so I'd like to talk a little bit about what should be included in a partnership agreement now I mentioned in the last video that I have a little process that I take people through where I tell them these are the things that should be in a partnership agreement and here's some ideas about how you might want to address those things how you want to cover them and I'd like to just give you a general idea now about what ought to be in a partnership agreement and and why those things need to be there so I'm gonna do this quickly I'm not going to go through all the options that's what we do in the meeting so if you're interested in that process reach out to me the website is in the section below and you can see where the website is and and contact information from me I have a process that's very inexpensive where we sit down with all the partners and we talk through the provisions that need to be in a partnership agreement and the provisions you want to add and I'll give you some ideas and recommendations and help people work through agreements and and then we draft a memo and you've got a partnership agreement so excuse me for using notes here because I don't want to forget anything but let me give you some notion of the things that need to be included in your partnership agreement the the first thing that needs to be there is the initial contribution of the partners so Joe Blow and I are starting a business together we're gonna be partners I'm putting up $5,000 Joe only has a thousand but he's gonna work hard for the first six months and get everything running and I'm not gonna work I'm gonna just keep going on my job and he's gonna work and not be paid and that'll be his offset for that 4,000 we need to define that we need to say I put in five he put in one plus labor okay so you want to define everybody's contribution if everybody putting in $10,000 who want to say that if there's some you know other form of contribution we want to say that so we want to get that really clearly laid out the next thing we want to define clearly in our partnership agreement is the distribution of equity or ownership is this a 50/50 partnership if so let's say it let's say that I am a 50% then Joe is 50% is 50/50 equal partnership let's get that laid out a lot of the disputes I deal with when people call me for mediation have to do with that very thing they say well we started out and it seemed like equal but he's not doing his job and I think it ought to be 60/40 and pretty soon people are in a fight if you have it laid out in a document that both parties or all parties if you have more than two partners in the business if if that's all defined and laid out that dispute isn't gonna come up because you have it in writing it's etched in stone nobody's gonna dispute it so I highly recommend that provision what do you do if additional capital is required so I put five Joe puts in a thousand and works two years from now we find out that we're not going as well as we thought we should and I've got to put in another ten thousand dollars do I get more equity or is that alone or how do we treat additional capital that's something we really want to talk about and define in there so that when it comes up and it will and most new businesses have various rounds of money that they need to race so when it comes up that they need additional capital how are we gonna treat that okay the next thing I want to include is how do we make decisions so there's Joe and I do do I make all the decisions regarding finances and Joe makes all the decisions regarding marketing or are all the decisions made by both of us and a vote how is that process in the business that'll prevent us from getting in a dispute that you know I'm never part of things you made that decision without talking to me I was excluded from that or hey that's my job and you're interfering with it it cuts out all that stuff so it's good to get defined how our decisions going to be made in the business okay what happens if there's a tie what if I say I think we need to expand the business there's a billion across the street for sale I think we ought to buy it you say definitely not I think the business is perfect the way it is I don't want to expand how do we break it tie do we flip a coin do we get a Ouija board does does my vote outweigh your vote if there's a tie or do we get a third party or do we mediate it how are ties decided in a 50/50 partnership you need a method for breaking ties and if you document it put it in writing it'll help you what are the partners responsibilities who does what what what is Joe going to be responsible for this is something that comes up a lot people call me all the time and they say look I'm doing all the work I do the sales I do the marketing I do the books I do all the administration I take care of the customers he's not doing anything you know and then I talk to Joe and and I find out that his job is maintenance and he says well nothing broke this month so I didn't have anything to do and he won't let me do anything because he always interferes and you know that kind of stuff so it's good to define what the responsibilities of the partners are I like to add something about how disputes are handled so if we disagree not just breaking ties on votes but if there's a dispute if we get angry at each other how do we decide that is that we just let it go or do we vote it and then go to that process or do we have a clause in there that says if there's a major decision we can't agree and it gets to a dispute where we're actually in sort of a hostile position we go to mediation and I've seen that and a lot of ship agreements so we need to put something in there about how we handle this agreement and it may be just you know we take turns letting go every other month you know if it's an odd number month I let go and the even number month you let go or you know something like that it can be however you agree then we have to talk about how we're gonna get paid are we gonna take a salary plus distribution of profit are we just gonna say we're each going to take a flat amount 500 a month for the first year and then after that we're gonna just split profit evenly or you're doing most of the work so we're gonna split the profit 6040 how are we gonna deal with money how are we gonna be paid how do we decide when people get a raise how do we distribute profit that all needs to be decided then you have the life events that happen death what happens if one of us dies does that suddenly does Joe's wife become my new business partner and I have to deal with her and she never liked me in the first place and now I've got a business partner that's hostile what happens what happens if a business partner dies do we fund that with life insurance or do we just say well sorry Charlie now whoever survives owns the whole business what do you do what about disability what if a partner can't work for a year or two years you know they're in a serious accident they can't work do you keep paying them or do you get angry and say I'm not paying you another dime or how do you deal with that having it figured out in your partnership agreement beats the heck out of going to court and litigating and spending tens of thousands of dollars in fighting for five or six years and ruining the business the friendship the relationships everything goes down the drain figure it out in advance and I can give you ideas about how to handle those things then there's abandonment what do I do if Joe just takes off he has a midlife crisis buys a sports car and decides he's going to travel the country not gonna work anymore what happens he still owns the business his name is still on the lease what happens so after six months does the whole business become mine do I quit paying him it's a good idea to define what do we do with a partner who abandons his interest and how do we define that abandonment and then what about a voluntary exit that's the term for that as a buyout what if I just want to retire and I don't want to work anymore do you buy me out and what are the terms can I just sell my interest to anybody or do I have to have your approval or are you the only one that can buy me out how does that work it's a good idea to define it and part of that is how do we value the business do we just you know get an appraisal now that sounds like a good idea bringing a business guy get an appraisal what if we don't agree on the appraisal then what then well get another appraisal now we have two ones high end ones low and one wants the high one and one wants the low one how do we or you know whatever how do we work that out how do we decide what get a third appraisal and then we'll take the one in the middle you know well you know depending on the nature of the business those appraisals are not cheap they have to go in and really audit the books go deep on everything really analyze an appraisal can cost $20,000 you know and that may not be practical so you know you get three appraisals you spend $60,000 on a business's worth a hundred yeah that doesn't make sense so how can we value the business I have some good ideas for you on that as well the other thing is what about policies are we gonna have a policy that we're never gonna hire relatives because it always makes for a problem if we get a lot of family members or are we gonna say any spend over $500 needs the approval of both of us are we gonna say that if the business expands east of the Mississippi the that is your territory and everything west of the Mississippi will be both of ours or or what I mean people come up with all kinds of notions around operating restrictions and provisions and you may have your own and as we talk through this stuff things will come up what about use of vehicles what about spending money for personal stuff what about you know taking the company car home what about travel there's a spouse go I mean just things that may be a problem we should talk about and get into your partnership agreement so what we do is we talk through these provisions I give you some ideas you say this is how we want to handle it we draft an agreement that says here's each provision here's how we decided to handle each thing you guys sign it that becomes part of your business records and if anything were to come up you at least have something you can hang your hat on it's binding it's legal you guys agreed to it it's signed it and that makes it ethical and and legal and binding so yeah it's great if you can have a lawyer do all that stuff but that gets you know cost you a few thousand dollars this process is much less expensive than that we have a couple of meetings I take you through each provision give you some ideas you tell me how you would like to handle it then we draw up a memorandum of understanding you guys sign it and you're covered so reach out to me let's set you up with the meetings with your partner and let's get this done so you're covered don't leave yourself wide open gosh I see heartbreaking stuff every day that can be avoided with a very simple memorandum of understanding thanks season