Having an agreement in place before you embark on a business project – or a lifetime together – is a good idea. Carol Roth shares her thoughts on the three components that should be included in a partnership prenup, and why writing this down can make your business run more smoothly and be more successful over the long term.

Who brings what? 

What is each person bringing into the partnership? It could be capital, industry knowledge, intellectual property, connections, or a willingness to invest time. Or maybe a combination of these. 

Who does what? 

Be very specific and define the activities everyone will be responsible for clearly so there will be no surprises. What one person calls marketing activities, another person might consider sales activities, as one example. 

Who owns what? 

If you bring something into the business, do you get to keep it on the way out? This could be a trademark, email list, copyright, methodology, patent, etc. You’ll need to document this.  

And if you create something together, what happens to that?

Carol also strongly recommends creating a buy-sell agreement. According to Investopdia:

A buy and sell agreement (or buy-sell agreement) is a legally binding contract that stipulates how a partner’s share of a business may be reassigned if that partner dies or otherwise leaves the business. Most often, the buy and sell agreement stipulates that the available share be sold to the remaining partners or to the partnership. Buy-sell agreements often use life insurance policies to fund the potential buyout in the event of a partner’s death.

A buy and sell agreement may also be called a buyout agreement, a business will, or a business prenup.

Be smart and savvy up front because you do not want to be fighting about any of this on the way out, should you decide to exit the business, or if you want your partner to exit the business. 

At that point, it’s probably too late. 

The right time to talk about expectations and responsibilities is before you’re in the thick of things, and definitely not when things are falling apart.

Photo by Sebastian Herrmann on Unsplash