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If you’re thinking about starting a cigar business or expanding an existing one, you might be interested in joining forces with one or more other people — share the risk, share the responsibility, share the fun. There are several ways to set up an arrangement like this, but creating a business partnership is probably the most popular option.
What Is a Partnership Agreement?
A partnership is a type of business structure in which two or more individuals jointly own the business. A partnership agreement is the business contract that outlines the rights and responsibilities of each partner.
Not having a partnership agreement means you won’t have an already agreed-upon arrangement for handling both unexpected disruptions and routine events like profit distribution or personnel decisions. If you and your partners in your cigar business can’t resolve conflicts yourselves, your only option will be to ask a court to apply your state’s business partnership laws.
What Are Some Common Mistakes When Preparing a Partnership Agreement?
The single biggest mistake is assuming you don’t need to include a particular detail in the agreement because you trust your partner to “do the right thing.” You and your partner are good friends who share a sincere love for cigars and cigar culture: what could go wrong? Well, quite a lot. No matter how much the two of you see eye to eye, there’s always going to be some difference in priorities that seems small on paper but can bring the whole house down if they aren’t addressed beforehand.
Another common mistake is not clearly defining each partner’s roles and responsibilities. Owning a cigar shop, for instance, means a wide range of tasks, from managing the finances and negotiating with suppliers to marketing, licensing, and the shop’s day-to-day operations. Failure to formally outline who handles what can lead to confusion and misunderstanding. At best, this means inefficiency. At worst, it leads to rifts that could undermine the business itself.
How Can You Draft a Partnership Agreement to Avoid Future Disputes?
No partnership agreement will perfectly anticipate what the future holds, but a well-crafted one will have provisions that account for:
- Ways of resolving future disagreements among the parties.
- Distributing assets and debts if one or more partners want to end the business partnership.
- Clearly defining each partner’s financial contributions to the business and how profits should be distributed among them.
- Protecting the intellectual property of the cigar business.
- Managing issues arising from personal relationships, like a partner getting divorced.
Venerable Law can help prepare a partnership agreement for your cigar business to best structure each partner’s rights and responsibilities. Set up a no-cost consultation by calling 813-680-4530.
