Going into business with friends or family can be a great way to leverage each other’s strengths and build a successful enterprise together. However, it’s important to have a clear understanding of each person’s roles, responsibilities, and expectations to ensure that the business runs smoothly. This is why you need a business contract.
A business contract is a written agreement that outlines the terms and conditions of the business relationship. It can be helpful to have a business contract in place, even if you’re working with friends or family, to avoid misunderstandings and conflicts down the road.
Here are a few things that you might consider including in a business contract with friends or family:
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Roles and responsibilities
Clearly define the roles and responsibilities of each person involved in the business. This might include tasks such as managing finances, marketing, or operations.
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Ownership
Determine the ownership structure of the business and specify the percentage of ownership held by each person. Also what happens in the case that one partner would like to leave and the other partner has to buy them out? What are the considerations in this case? Also if somebody else is being brought into the business later what are the requirements for that person to come in.
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Decision-making
Establish a process for decision-making, such as voting or consensus-building, to ensure that all parties are involved in important decisions.
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Finances
Outline the financial arrangement, including how profits will be divided, how expenses will be paid, and how financial decisions will be made.
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Termination
Specify the circumstances under which the business relationship can be terminated, and outline the process for dissolving the business and distributing assets.
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Confidentiality
Include provisions to protect confidential information and trade secrets.
7. Investors
If you plan to bring in investors at some point you need to be clear at the beginning how that will work. Sometimes one person may want to sell and the other one doesn’t so it is important to put into writing what will happen if you ever want to sell a stake in the business or a part of it.
Having a clear, written business contract in place can help to ensure that your business relationship with friends or family is successful and free of misunderstandings and conflicts. Key things are roles and responsibilities, finances, termination, decision-making, ownership and whether there will ever be a need to sell a stake in the business what will happen. It’s important to consult with a lawyer to ensure that the contract is legally binding and meets your specific needs.
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