Business Partnership Agreements

It is a fact of life that many business partnerships fail. Some interesting statistics:

In the USA between 2007 and 2010 the small business failure rate rose by 40%. Businesses with multiple owners are more likely to survive than sole proprietorships, although 72 % of small businesses are sole proprietorships.

Business LegalMore than 50% of business partnerships result in failure.

Small Biz Viewpoint96 % of small businesses survive for one year, 85% for two years and 70% for five years.

Small Business: Canada

Reasons for Failures

The two most common reasons that business partnerships fail is failure to make an adequate plan and failure to have a written partnership agreement.
Most written partnership agreements are created at the beginning of the business venture and should cover:

  • How the partners will run the business
  • How business decisions are made
  • How responsibilities are divided
  • What capital contributions will be required
  • When will drawings or salaries be paid
  • Who owns any intellectual property created
  • How disagreements will be resolved
  • An exit strategy including the financial aspects upon dissolution of the partnership.

Have a Written Agreement & Regularly Review It

If your accounting business is a partnership, is there a written agreement in place? If not, you should seriously consider creating an agreement.
If an agreement is in place, how long since it was reviewed? We believe that partnership agreements should be regularly reviewed and updated, particularly the exit strategy as the personal circumstances of the partners may change over time. Such a review should also embrace a review of loan agreements, lease agreements etc.

If you are dealing with partnerships as part of your client base, you may wish to pass this information to them.