NFIB

Partnerships Require Specific Contracts, Part II
04/ 01/ 2002

In last week's Workshop, Jeffrey Moses listed 12 points that need to be addressed in a contract between partners. In today's Workshop, he discusses in detail items to include for each point.

1. Names and addresses of partners. It's important to specify all parties involved in the project and in the contract provisions. Each person named should sign and date all copies of the contract that are distributed to the partners.

2. Division of labor. List specific duties with assignment to responsible parties in the contract. As a project advances, some partners will need to give greater or lesser attention to its progress. Make sure these anticipated changes are written in the contract.

3. Ultimate percentage of ownership for each partner. List as an actual percentage, which is usually based on initial inception of the idea, financial contributions and actual work done. Attention should be given in the contract about all types of financial earnings from the project, both immediately after the project and long term.

4. Who makes decisions about certain aspects of the project as it progresses. Often, each partner has specific skills and knowledge that may become more applicable at various stages of the project. Based on this, assign responsibility for decisions.

5. The type of legal relationship existing between collaborators. An attorney should be consulted about this matter at the outset because of the great importance for ownership and tax purposes.

6. Whose name appears first on the credits. Based on initial inception of the idea, financial contributions or actual work done, decide the order of credit for the piece.

7. How expenses are divided, and when they will be paid. This critical point minimizes the possibility of later uncertainty about who was supposed to pay for what.

8. How disputes will be resolved. Decide in advance how unresolved disputes will be decided--mediation, arbitration, etc. If the partners reside in different cities, states, or countries, decide in advance where dispute resolution will be held, and under what jurisdiction.

9. What happens if one of the collaborators falls ill and can't complete the project or if one of the partners decides to drop out. The contract should stipulate that the remaining partner has complete control over conclusion of the project. Details should also be written about changes in percentage of financial rewards based on service actually performed.

10. The collaborators' rights of ownership for ensuing projects that are based on the success of the current project. Don't overlook the possibility that a successful project might serve as an offshoot for future projects. Ownership of future projects could be financially important for all partners.

11. Timetables for achievement of specific stages of the project, including completion. State project deadlines precisely. Use dates, not just number of weeks or months until completion.

12. How the contract can be amended. A contract usually can't be amended without the written agreement of all parties. If one or more partners has the power to amend the contract without the written agreement of the remaining partners, write details of that arrangement into the contract.

Remember, these are suggestions only and should not be considered a complete list of what is needed in a contract. All partners in a project should consult with their attorneys if they have questions about their rights, or about the rights of other partners.

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