A business partnership is analogous to a relationship. Initially there is a courtship where two people get to know one another. Maybe a business plan is created during this stage of the relationship or maybe just the concept of a business. As the relationship progresses and it becomes more serious, one person may pop the question: Will you be my partner? This is a huge commitment for both individuals and a tough conversation. How much equity? How will we pay personal bills? What is the time commitment? What are the roles? There are dozens of items that need to be covered. Answering all of the important questions before moving forward with the partnership is incredibly important because it will reduce the potential for misunderstandings between the partners. Another tough question that needs to be addressed is the potential separation of the partnership. A buy-sell agreement, similar to a prenuptial agreement to marriage, governs situations where a business owner dies, files bankruptcy, becomes disabled, retires, or otherwise leaves the business.
No one wants to think about divorce or ending a business partnership. However, putting everything in writing while the parties are friendly is essential. It will create a roadmap for resolving common issues and will ultimately reduce the chances of a dispute.