Why is it important to address decisions in partnership agreements?

On Behalf of | Mar 24, 2021 | Business Formation

When business partners take on the business world together, they often know they will face challenges. It is inevitable.

Business partners must create a partnership agreement to tackle these challenges effectively. They can work together proactively to avoid serious disputes – especially if they create a specific outline for how they approach all business matters and decisions.

Partners must know how they will make decisions

As we have discussed in previous blog posts, partnership agreements are a critical aspect of every business partnership. And one of the most important elements partners should address in these agreements is how they will approach any and all business decisions they may come across.

Of course, the strategy that partners choose to outline will depend on the roles and responsibilities each partner takes on in the daily operations of the business. Even so, business partners should make sure they clearly explain the process and requirements for making decisions regarding:

  • Financial matters
  • Employment decisions
  • Operational matters

Disagreements over decisions are one of the most common sources of partnership disputes. That is why establishing a process to follow for each decision can help prevent disagreements from developing into or contributing to a much larger dispute that puts the business at risk.

What factors to consider in a decision-making strategy

The first thing that California business partners should consider is their involvement in the decision-making process. For example, one partner might be more involved in daily operations than the other, but both might wish to review and approve any decisions in the employment arena.

Therefore, it is helpful if business partners consider:

  • Who will all be involved in the process
  • How these individuals will communicate with each other
  • The boundaries and terms for compromising, if necessary
  • The process for reviewing the outcome of business decisions

Strategies will differ depending on what is best for the business and what both partners wish. It is even common for these processes to evolve over time. However, it is still critical for business partners to have a foundation for their decision-making to prevent disputes.