Most partner disputes do not start in bad faith. They start with a silent contract: a missing clause, or wording that carries two readings. Seven points worth pausing on before you sign any partnership or investment agreement.
1. Shares and how they are valued
Percentages alone are not enough. State what stands behind each share: cash, property, a right of use, expertise, or work. Where a share is in kind, agree how it is valued and by whom. And say how it is revalued when a new partner joins or capital is increased.
2. Management and its limits
Who manages the company? Which actions require partner approval? Set a financial ceiling for acting alone, and reserve the major decisions: borrowing, pledging assets, selling assets, hiring relatives, and entering long-term commitments.
3. Profit distribution
“Distributed in proportion to shares” is not enough. Fix the timing of distributions, the share retained for reinvestment, and whether the managing partner takes a salary or management fee separate from their share of profits.
4. The exit mechanism
The clause most often left out. Agree in advance on the right to sell a share, the other partners’ right of first refusal, how a share is priced on exit, and what happens on a partner’s death or incapacity. Without it, a small disagreement freezes the whole business.
5. Confidentiality and non-compete
Define what counts as confidential, how long the obligation lasts after exit, and the geographic, time and activity scope of the restriction. An excessive clause may not be enforced; a missing one leaves the door open to competition from inside the house.
6. Breach and termination
What counts as a material breach? How long is the cure period? And what follows: compensation, a compulsory buy-out of the share, or termination? Put the consequence in writing so a dispute does not turn into an open negotiation.
7. Dispute resolution
Name the forum clearly: the commercial court or arbitration. If arbitration, fix the number of arbitrators, the language and seat of the proceedings, and the applicable rules. A vague arbitration clause wastes time on a dispute about where to dispute.
Before you sign
- Read the definitions at the front; most disagreements begin with an imprecise definition.
- Confirm the signatory holds the authority to sign, and that the documents are valid.
- Review every annex: schedules are part of the contract, however technical they look.
- Keep a signed copy of each final version, not drafts exchanged over messaging apps.
We draft and review contracts before signature and set out the risks plainly, and provide investor services and structuring that protect investor rights.
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This article is general information, not legal advice; the right wording depends on the activity and the nature of the partnership.