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In a new startup, there are many factors to decide on and problems to resolve. From getting a suitable investment to making your startup unique, it’s not easy to resolve your challenges. If you have a method in mind and your partner disagrees, this can quickly lead to conflict, which nobody wants. There are a few ways to anticipate conflict with your partners in a new startup. The first way is with a comprehensive partnership agreement. Curious to know the factors to consider before you create one? Read this article for more information.
How Do Partnership Agreements Help You Anticipate Conflict With Startup Partners?
Since partnership agreements feature the critical details of managing and financing your business, they help you anticipate and resolve conflict with startup partners. You and your startup partner must adhere to a binding contract.
Partnership agreements also establish the critical functions of the entity as well as the owners’ duties, the stake percentages for the startup owners, and information on how you will make business decisions together.
All of this, taken together, means that partnership agreements are a top conflict anticipation document.
3 Factors to Settle When Establishing Startups to Anticipate Conflict With Partners
So, what three factors should you try to settle with a partner to avoid and anticipate conflict when establishing startups? Check the four points below before you begin working on your partnership agreement.
1. Equity and contribution
What will your contribution to the startup be? What will your partner’s contribution be? There’s no point in one person taking ownership of the capital and one person contributing with the full scope of work and then claiming 50% equity each. This arrangement will lead to burnout and conflict with your partner.
It’s vital to ensure the equity matches the market price and that you evaluate the risk, knowledge required, and innovative ideas before proceeding with the agreement. It’s also vital to seek the advice of a third-party advisor before completing your partnership agreement.
2. Roles and responsibilities
Although you may be tempted to delegate or select roles and rely on them to establish the responsibilities you will take on, this isn’t the optimum approach for avoiding and anticipating conflict with partners. Each partner will have to take on more responsibilities than established within a single role – that’s the nature of a startup.
In this respect, it could be helpful to consider every role required to make a startup work or consult a comprehensive list of roles you must fill in your startup and then divide the work.
3. Commitment and financial circumstance
Since your expectations for startup growth may not materialize as quickly as you hope, discussing financial circumstances and economic requirements is fundamental. You can consider whether you need to raise capital quickly based on your economic requirements.
Commitment is the other side of this coin. You must know your partner’s commitments and how they relate to their financial circumstances. How involved will they be with the growth of the startup? It will depend on their commitments and financial situation, so it’s worth discussing these points with them.
What should your partnership agreement contain?
There are a few clauses that your partnership agreement must contain. Check the list below to complete your legal partnership agreement document with ease.
- The partnership’s legal name – at the very top of the partnership agreement, make sure you have stated the business name, the purpose of the business, and your partners’ names.
- Ownership of the business – include a section that outlines the division of ownership for the company and which factors influence ownership (such as if you need to sell the startup)
- The date you established the business – include a clause that states the date you launched the business
- Capital investment from each partner – include a section that states the amount of capital each partner has invested, helping you prevent issues with dividing profits and losses
- Workload – include a section that outlines the division of work. Since the division of work can cause several disagreements between business partners, this section is vital. Clearly outline which responsibilities you will both be responsible for
- Methods to resolve disputes – include a clause that stipulates how you will resolve disputes. You may choose to defer disputes to a business advisory board or a mediator
- Outcomes for dissolution of the business – include a section that stipulates what actions you should complete if you dissolve or leave the business
Ways to Anticipate Conflict with Partners in a New Startup: Key Points
If you’re about to launch a new startup, remember that a partnership agreement is a crucial legal document. Before creating one, ensure you’ve discussed this article’s fundamental three points. Discuss your commitment and financial circumstances, roles and responsibilities, and equity and contribution, then create your partnership agreement to anticipate and avoid conflict with your startup partner.
You may also like: What to do if Your Business Partner has Breached your Partnership Agreement
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