You Trust Your Business Partners… But Are Your Business Partnership Agreements Protecting You?

Safeguard your partnership with the right agreements before conflict hits.

You started a business with people you trust...maybe a friend, family members, a business partner, or an investor who shares your vision. Everything feels aligned and exciting.

But even with full trust, having clear business partnership agreements in place is what truly protects your company when challenges arise.

What could go wrong? Plenty.

Conflict around goals and strategy. Lack of communication. Business challenges or successes. Money squabbles. Differing exit timelines.

The unhappy truth is that messy breakups abound in business…consider Facebook and the Beatles.

As a business and exit planning consultant, one of the best pieces of advice I give owners is to plan for the worst and hope for the best.

This is especially true when it comes to having your business agreements well thought out and executed before starting a business. With proper planning, you’ll not only have a clear understanding of how the business will be operated, but also how you or others can exit if it doesn’t go well.

Key Business Partnership Agreements to Have in Place

So, what agreements should you consider having in place for your business, if you don’t already have them?

Shareholder (or Stockholder) Agreement

If there is more than one owner, a Shareholder Agreement is non-negotiable. This important document:

• Describes how a company should be operated and outlines the shareholders’ rights and obligations.

• Ensures that shareholders are treated fairly and that their rights are protected.

• Allows shareholders to make decisions on whether outside parties may become future shareholders and provides safeguards for those holding a minority interest.

• Helps define how decisions are made when partners disagree, reducing the risk of conflict or costly litigation.

Example:

Imagine you're a minority owner who wants to leave the business. The agreement can outline the mandatory or optional buyback by the company of your shares. It can also provide that an owner can’t sell to an outside party without giving the other shareholders or company the right of first refusal. And it can spell out how the value of your shares is calculated should a buy-out occur.

For 50/50 partnerships, it's wise to incorporate a mandatory option allowing one owner to buy out the other if stalemates occur. Without some forced option to exit out a shareholder or force the sale of the business, disputes can lead to a deadlock, and this is typically where lawsuits ensue.

🧭 Takeaway: Define how decisions are made and how ownership transitions happen before tensions arise.

Buy-Sell Agreement

A Buy-Sell Agreement determines what happens to an owner’s shares if they die, become disabled, retire, or simply want out. It’s a form of business “prenup,” ensuring ownership transitions smoothly and fairly. Many companies fund these agreements with life insurance so the business has cash to buy out a deceased owner’s shares without financial strain.

Example

One of our clients, a majority owner with several family members as minority (silent) shareholders, wanted to buy them out so he had 100% control and could take on the level of risk he desired to grow the business. Their buy-sell agreement outlined the value of the stock and a buyout period but didn’t allow for a forced sale. Without a clause requiring owners to be active participants, the majority owner was stuck until the minority shareholders agreed to sell or something happened to them forcing an exit.

🧭 Takeaway: Your buy-sell agreement should clearly define who can own shares and under what conditions they can (or must) sell.

Operating Agreement

For limited liability companies (LLCs), an Operating Agreement is essential. It defines how the business will function day-today, covering financial and functional decision-making, and provides clear governance on internal operations according to the rules and specifications defined by the owners.

Example

A previous client ran an LLC with four equal owners - all family members but from two different families. Their roles ranged from President to Purchasing Manager, yet each believed they had equal say in operations. Without a clear operating agreement separating ownership rights from management authority, conflict was inevitable.

🧭 Takeaway: Even (or especially) among family, clarity beats assumption. Define roles early to protect both relationships and results.

Protect the Business and Relationships You’ve Worked So Hard to Build

The Shareholder, Buy-Sell, and Operating Agreements are some of the more common and critical agreements that you should have in place in your business. Thinking through all the potential situations and circumstances as you’re drafting the documents can provide clarity, prevent disputes, and create continuity for the business.

Don’t wait until conflict tests your partnership.

👉 If you’re unsure whether your agreements are strong enough or need guidance creating them, our team can help. Let's jump on a call!

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Ed Turek | Owner/President of Tureks Plumbing Services

Case Study: Tureks Plumbing Services

Ed was looking to go from good to great and position himself and the business for an exit at some point in the future. He also wanted a team that could execute day-to-day operations without him, freeing Ed up to focus his energy where it has the most value. Full Case Study

Four years into his Value Journey, Ed achieved:

178% Increase in Business Valuation

45% Revenue growth

EBITDA has grown 2.8X

Ed is out of the daily operations

Want to achieve results like these in your business?

Start Your Value Journey

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Jayne McQuillan, CPA, MBA, Certified Exit Planning Advisor (CEPA) is the owner of Journey Consulting, LLC and author of The Value Journey: How to Drive Profits, Build Wealth, and Exit Your Business on Your Own Terms.

Our firm is focused on providing business owners and their businesses with strategic planning, exit planning, financial expertise, and organizational improvement. We use a holistic approach within all of our services by aligning leadership with business strategy and outcomes.

Schedule your complimentary consultation to begin your Value Journey today!