I visited the cutest coffee shop last week and it’s owned by an estate planning and real estate attorney named Monica Whitney, and guess what the name is? Can you guess the name is? Baristas and Barristers. Isn’t that the best name for a coffee shop that’s owned by an attorney? I think it is.
So, I was there I ran into a client that I’ve never met in person so that was cool because 98% of my clients are not local. So it was great running in to them like that and then I spoke to a few more people that were there. And most of those people, or a lot of people that I was talking to, they were like in the beginning stages of entering into partnerships. And so we discussed partnerships in episode 119, like what it takes to create a partnership. But today, today I wanna talk about what you can do to have a successful partnership.
Today when we discuss partnerships, we’re talking about multiple people that are coming together for a common purpose. They can come together as a joint venture or an LLC or even board members. It doesn’t matter. Today we’re gonna highlight the five important considerations to make before saying what I do. Because to me, when you enter into these relationships with people, it’s like being married to them. So we’re gonna talk about that. And then we’re also gonna talk about four contract clauses that can improve your partnership success.
So the first step to a successful partnership is going into that partnership with your eyes wide open. Have an in-depth, meaningful conversation to ensure that you share the common vision and goal with the person you wanna enter into this relationship with. It’s so important to have alignment in the terms of the directions that you wanna take and what you hope to achieve together. You’d be surprised how many people don’t have that conversation. I feel like that’s the first conversation you should have.
The second consideration to a successful partnership is determining whether or not your potential partner brings complementary skills and expertise and resources to the table. You wanna look for partners who can fill in the gaps to your own capabilities and provide and add value to the partnership. It’s not just a matter of you liking this person, but can they help you achieve what you want to achieve by working together?
The third consideration is trust and compatibility. Building a partnership requires trust and compatibility between the parties involved. You need to assess the level of trust you have with your potential partner, consider whether your values, your working style, and communication methods align. And this is not a matter of how they show up on social media, but how they show up in real life, because people put on for the gram, they put on for TikTok and Threads and Facebook and all those things. You wanna know how this person really shows up in life. How do they work? So only so much of this evaluation can be done through conversation. You really need to be able to assess whether their values and working styles are aligned through their actions, through their reputations, from people who have actually interacted with them in the past. What do the people call that? The young people call that, receipts. What do those receipts look like?
So the fourth consideration is, what are you all going to be doing? It is imperative to define and clarify the roles and responsibilities of each partner to avoid confusion and conflicts later on. Establish a clear understanding of who will handle specific tasks, decision-making, and day-to-day operations. And trust me on this, if you don’t, you’ll find yourself with your lip poked out because you feel like your partner isn’t pulling their weight, and you don’t want that feeling in a partnership, especially if there’s a contract signed and it’s too cold to get out of that contract. Especially when there’s money on the line.
And finally, I would say the fifth consideration for building a successful partnership. And that’s a finally and fifth, that’s just for this episode, because there are a whole lot of other considerations that can be made, but today we’re only talking about five. So before you sign on that dotted line, I need you to evaluate the potential risks and challenges associated with this partnership. I’m sure that you will consider the factors such as marketing conditions and competition, but you also need to look into any type of regulatory requirements, meaning that if you and your partner work in different industries, are you even allowed to come together, to work together to build this thing? So, and you also wanna look at any type of potential conflicts of interest. You need to develop strategies to mitigate risks and create any type of contingency plans if you run into anything that might be alarming.
And you did hear me say sign on the dotted line, right? You heard that? That’s because whether it’s a collaboration, a partnership, or a joint venture, there should be a written contract in place to memorialize the conversations that were had. So in that spirit, we’re going to move on to the four clauses your agreement should have.
Purpose and scope. Your contract needs to define clearly what the purpose of this agreement is, what the purpose of this partnership is, and the scope of the agreement. This clause should clearly define the purpose and scope of the partnership or joint venture. It should outline specific goals, objectives, activities that the parties intend to undertake together. Defining the purpose and scope helps prevent any type of confusion and ensures that all parties have a shared understanding of the collaboration’s intended outcomes.
The second clause you want to have in your contract is contributions and responsibilities. So this clause is going to talk about what you all are putting into the partnership, what type of contributions, whether it’s financial, what type of resources that you are going to contribute, whether it’s assets. And then the responsibilities of each party that are involved. So like I said, this is gonna outline financial commitments, investments, and assets that you will contribute to the collaboration. And additionally, it also specifies the roles, duties, and obligations of each party, ensuring that there is clarity regarding the division of labor and decision-making authority. And when you’re talking about a partnership, you really wanna make sure that you have that detailed and in writing.
The third clause that we want to talk about or the third clause you want to have in your agreement is something that talks about the profit sharing and distribution. So this clause is going to outline how profit and losses and expenses will be shared amongst the partners. It’s going to define the percentage or method for allocating profits and losses. It’s gonna address issues such as capital distribution, distribution of net income, and any type of preferential treatment and any type of peripheral treatment or restrictions on profit sharing. You need to have a clear guideline for profit distribution to help manage financial expectations and prevent disputes because when the money is funny, the partnership will go down real fast. So let’s have this conversation in the beginning so you know what you’re walking into. And set those expectations because what you don’t wanna do is find yourself in a situation where it’s time to make these distributions and you aren’t aligned. You want to make sure that there’s 40% in the account all the time. They just want to drain it. That’s a big issue.
The fourth clause we want to talk about, or you want to add into your contract, is termination and exit strategy. This clause addresses the circumstances and procedures for terminating the partnership. It’s going to outline the conditions which the collaboration may be dissolved, such as expiration of the partnership term, breach of agreement, or just a mutual agreement to terminate. This clause should also cover matters relating to the transfer of assets, liabilities, intellectual property rights. One more time. The clause should also cover matters relating to transfer of assets, liabilities, and intellectual property rights to ensure a smooth and orderly exit from the partnership.
And because you know that I can’t let you leave without discussing intellectual property right, I’m going to add a fifth clause in there. And that should be that intellectual property clause. Because it’s not enough to talk about intellectual property rights when you’re leaving. You need to talk about it in the beginning because too many people go into a partnership with the I created this name or I created this idea type of attitude is crucial in a partnership agreement to address these ownership, to address the ownership, use, and protection. It’s crucial in a partnership to address the ownership, use, protection, and management of intellectual property assets upfront. You also want to address what happens to the IP when the partnership ends. Does it refer to the original owners, or does it remain with the remaining partners? Can it be licensed? Those type of issues, those type of concerns I want you to address in the partnership agreement in that clause.
I want to hear from you. I want to hear your partnership successes and challenges. Sound off in the comments. What did you get right and what did you get wrong?
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