Do I need a business partnership agreement in a merger?
On behalf of Law Office of Clifford J. Hunt, P.A. on Wednesday, October 3, 2018.
Merging companies takes a lot of work to be successful and meet certain regulations, but many times the importance of a business partnership agreement is forgotten. When two entities become one, there are differing cultures and processes that can clash, especially when two people are responsible for making decisions.
If you are in the process of merging two companies and both businesses’ owners are going to continue to be in leadership positions, it is worth looking into a partnership agreement as part of the merger.
What does an agreement need?
A business partnership agreement should include the following seven items:
- What each owner will contribute to the business, in terms of time, money and work
- How profits will be distributed
- What exactly each party “owns,” which is especially relevant if one party wants to withdraw or buy out the other party
- Who will make final decisions, especially in an instance where partners disagree
- How disputes will be resolved
- How the business and ownership will continue to function in a life event, such as an owner’s retirement, deteriorating health or something unexpected
- How the partnership can be legally terminated
These areas of a partnership can be awkward to talk about and may feel like they will derail an agreement, but for a merger to be successful it needs to be mutually beneficial for both companies and anticipate any hiccups to keep the business afloat.
Drafting an agreement
While some owners may decide to draft their own agreements, it’s possible to accidently leave out key details. A business law attorney can look over any agreement drafts and draw up a more concrete plan to help ensure all boxes are checked.
Merging companies and keeping both owners involved is possible and can lead to successful outcomes for everyone – if all parties are willing to put in the time to make it work.