Starting a business in California with your best friend is a great way to make sure that you are working with someone on whom you can rely. But before you take the plunge, it’s important to get a written contract in place.
Why is it important to have a contract?
First, a contract sets out the roles and responsibilities of each business partner. This can help prevent disagreements down the road since even the best of friends can sometimes have differences of opinion. Second, a contract can help protect your business interests if one of you decides to leave the business. For example, the contract can stipulate that the departing partner will sell his or her share of the business back to the other partners.
How should you go about drafting a contract?
The first step is to sit down with your business partner and figure out what each of you wants and needs. Once you’ve done that, you can start writing a contract that outlines the terms of your partnership. Next, have a lawyer look over the contract to make sure that it’s legally binding. This means that if there’s ever a dispute, you’ll have a written agreement to fall back on.
What if you don’t have a contract?
If you don’t have a contract, you and your business partner are considered equal partnerships per business law. This means that each of you has an equal say in how you run the business. It also means that if one of you decides to leave, the business will be dissolved. On top of that, you’ll have to split the profits (or losses) evenly. Just remember that the best time to create a contract is before you start doing business together. That way, there’s no confusion about what each of you agreed to.
Don’t let the idea of drafting a contract scare you off from starting a business with your friend. A contract can actually help strengthen your friendship by ensuring that you both are on the same page from the start.