5 Crucial points to consider before Entering a Partnership

Partnerships can make all the difference in ensuring a startup’s success. Partners bring much-needed additional managerial support in the form of intellectual, capital support, and skills. In India, it is mandatory to register a partnership to make it official. Therefore, every aspect of this partnership must be thoroughly thought over. After all, a partnership can be all the difference between a successful business and a failed one.

Ponder over these points before you register a partnership.

Take your sweet time before deciding.

Choosing a business partner is no different than choosing a life partner. Therefore, it must be paid equal attention if not less. Individuals with similar interests, life goals, and values usually make successful partnerships; and you don’t find a perfect partner overnight. You must meet a lot of individuals, and gauge your options. Meeting prospects and building connections is the key here. And bear in mind that a partnership is a two-way street; you must make all the efforts to create a harmonious relationship.

Make sure you make it official.

Registration of a partnership is crucial as the nature of this relationship is uncertain. Every single task and responsibility must be written in clauses to ensure transparency. This transparency is the reason that a partnership agreement is always recommended. Some major benefits of partnership deed registration:

• It allows partners to seek legal recourse against third partners and each other.
• It enables partners to claim set-off against the claims made by any third party.
• It makes a lot of business transformation easier and faster.

Signing a partnership deed is not enough; it should be well-drafted and inclusive.

• The name of the partnership: The name should be chosen carefully, keeping in mind that it should unique and relatable to the target audience.
• Partners’ contribution: The contribution of all the partners in terms of capital, services, and cash must be clearly stated. Apart from this, individual valuations and ownership percentages must also be written in the deed.
• Profit and loss allocation: The detailed division of profit and loss among the partners should also be part of the deed.
• Partners’ Authority: If different partners of the venture have different authority, and decision-making power, those details should also be there in the deed. It must clearly define who will have a final say in case of a decision deadlock.
• Management duty: Another major component of an ideal deed is the defined duty chart of the partners. Everyone on board must be clear of their day to responsibilities as well as long-term goals.
• New partner admittance: The deed must also describe the way to introduce new partners on board.
• Partner withdrawal: The partnership deed must also define the withdrawal process for a partner who is unable to continue the partnership, due to any legitimate reason. It avoids any chance of clash or ambiguity that might arise due to an unforeseeable reason.
• Dispute resolution: In business, disputes, and related instances are inevitable. It is wise to chart out the specific dispute resolution schemes, ADR, or court orders to handle disputes or other means.

Look into LLP registration

Creating a Limited Liability Partnership is always recommended. It imparts a more secure structure as compared to the general partnership. It ensures that the liabilities among the partners are limited and the risk is mitigated.

Learn more about effective partnerships at workspan.com/guide-to-partner-relationship-management-firm.

Decide on the capital distribution carefully.

Capital is the fuel the engine of a business runs on. Therefore, the capital distribution must be must planned thoroughly. As partners can contribute capital at any stage, therefore, the clause should specify:

• Partner’s initial contribution
• Any changes in the capital amount
• In case there is no contribution from any partner, the deed must specify this too

Good partners are like the wheels of a bicycle. For a bicycle to move smoothly, both must work in tandem. Therefore businesses, especially startups, must choose their partners carefully. Startup ideas no matter how brilliant they are won’t amount to anything if partners don’t see eye to eye. Therefore, the key point mentioned above must be taken care of before entering a partnership if you want to see your startup idea flourish into a full-fledged business.