What to Consider Before Entering Into a Business Partnership?

A business partnership can be a very crucial step toward getting your venture to the next level. At the same time, this decision is one that should be made after a lot of consideration. A successful relationship between two businesses means a shared workload and increased resource base. However, it calls for trust, effective communication as well as goal setting. There are certain factors that must be taken into account before entering into a partnership, and this blog will highlight them.

This guide will assist you in understanding all the major things you must contemplate before engaging in a partnership deal and therefore arrive at the perfect decision. In contrast, an uncoordinated partnership can result in disagreements, losses, and sometimes complete contractual termination of the business. Therefore, before entering a business partnership, know these crucial aspects that would ensure that the business partnership is a successful one.

1. Shared Vision and Goals

Every functional business relationship is anchored on the vision that both parties share. The two partners should have a certain vision and mission while starting the business partnership. Before proceeding toward a partnership agreement in the UAE, there must be a verbal agreement on matters such as the business’s mission and objective, its development plan, and the exit strategy. Lack of agreement in these areas can create problems later.

Short-Term vs. Long-Term Goals: While some might aim at profits in the shorter term, others may strive to create more stable growing partnerships. Just knowing where your partner is on this spectrum will help bring your strategies into better alignment.

Business Values: Individual and organizational values should correspond since they determine how some decisions will be made.

Read more about: Joint Venture Agreement in the UAE

2. Complementary Skills and Strengths

Usually, a business partnership would be most effective if a partner has something to contribute that the other does not possess. Sometimes, one partner may have a very strong back-end background, especially in terms of finance and operations, while the other may have a very strong marketing background, sales, and marketing, in particular. That way the tasks are divided in such a manner that each partner covers areas they would have trouble handling on their own.

Assess Your Own Strengths and Weaknesses: Underline where you can add the most value to the partnership, and where you are likely to require help.

Leverage Your Partner’s Expertise: Make sure that together, both of you do not have all the flaws, and complement each other as much as possible.

3. Roles and Responsibilities

It is very important that each partner’s responsibilities are well set to minimize confusion and cases where one or some of the partners are doing the work that others are supposed to do. According to various researchers, the absence of understanding of big and small responsibilities may become the crucial reason for wasted time, irritation, and disagreement. The parties must agree on the operational management, strategic decision-making, and financial management from the beginning of the partnership.

Management Roles: The key positions in the partnership within the organization should be decided.

Decision-Making Authority: Decide when and on what basis the partnership decisions will be made—will the decision be made mutually or will one partner get to make the decision on specific areas?

4. Financial Contributions and Equity

To ensure that all members are well-informed before entering the partnership, it is wise to define the financial inputs of each partner. This is not only for the first but also for the subsequent investments. Furthermore, it is always important to determine the ownership and control as well as the profits split.

Initial Investment: Build an understanding as to which of the partners contribute what amount to the business at the initial stage and whether this will be money, property, or work.

Profit Distribution: Decide in what proportion the profits will be shared. If profits are set aside as reserves, decide whether this will be based on each partner’s financial contribution or other factors, like the time they invest.

Check Out: Investment Agreement in the UAE

5. Legal Structure and Partnership Agreement

Having a legal structure for your partnership is vital to safeguard each participant’s particular self-interest. The form of business you select may be a general partnership; a limited partnership; or a limited liability partnership.

Choose the Right Legal Structure: Speak with a business setup advisor to find out which form of business entity is most advantageous for your particular line of partnership.

Draft a Partnership Agreement: The management of a partnership firm requires a well-written partnership agreement. It should provide details of the relationship between the two partners, such as; responsibilities; fund allocation; revenue sharing; management and control, and conflict solving.

6. Conflict management and Conflict Solving

Communication is the key ingredient that supports every good relationship that exists between two parties. Without implementing it, any form of dispute no matter how trivial, can easily transform into a huge calamity. It is also important for firms to prescribe techniques for contact and handling conflicts so that the partnership does not develop misunderstandings.

Regular Meetings: Regular meetings should be held in order to review the state of business, its problems, and existing opportunities.

Dispute Resolution Process: Most people do not devote time to selecting the ways to resolve conflicts in advance if the conflict appears in the future. Will you mediate, or arbitrate the dispute? Considering the process of resolving conflicts in advance can help in saving time and resources.

Read more about Power of attorney in Dubai to help you handle your business activities seamlessly.

7. Exit Strategy

Entrepreneurs do not expect a termination of a partnership but having a plan in the event of a partner exit is essential. It may be for personal or financial reasons, or a change in mind about their interest in the line of business at some point. Business partners should have an exit strategy because the business runs a high risk of collapsing, especially when one of the partners wishes to leave.

Buyout Clauses: Get a provision in the partnership agreement dealing with the terms of compulsory acquisition of the share of one partner by another.

Dissolution Procedures: Explain the procedure to be followed in case of dissolution of the partnership if the two partners decide to do so.

Business partnership is a significant step that must be seriously considered and this is all because of the risks involved. When it comes to a shared vision, complementary skills, financials, legal forms, and risk management, you can lay the groundwork for a good partnership. However, do not forget that a good and legally binding partnership agreement along with strong communication will help keep the potential disputes at bay in the long run. Contact Legal Inz to make your partnership agreement today.