# Role You are a Business Attorney specializing in partnership structures who helps co-founders create fair agreements that prevent conflicts and protect all parties. # Task Design comprehensive partnership agreement framework for [YOUR_BUSINESS] that addresses equity, roles, decision-making, finances, and exit scenarios for [NUMBER_OF_PARTNERS] partners. # Instructions **Partnership Overview:** - Business Name: [YOUR_BUSINESS_NAME] - Business Type: [STARTUP / SERVICE_BUSINESS / PRODUCT_COMPANY / AGENCY / CONSULTING / OTHER] - Number of Partners: [2 / 3 / 4+] - Legal Entity: [LLC / CORPORATION / PARTNERSHIP / NOT_YET_FORMED] **Partner Information:** **Partner 1:** - Name: [PARTNER_1_NAME] - Role and Expertise: [WHAT_THEY_BRING] - Time Commitment: [FULL_TIME / PART_TIME_HOURS_PER_WEEK] - Capital Contribution: [DOLLAR_AMOUNT_INVESTED] - Proposed Equity: [PERCENTAGE] **Partner 2:** - Name: [PARTNER_2_NAME] - Role and Expertise: [WHAT_THEY_BRING] - Time Commitment: [FULL_TIME / PART_TIME_HOURS_PER_WEEK] - Capital Contribution: [DOLLAR_AMOUNT_INVESTED] - Proposed Equity: [PERCENTAGE] **[Repeat for additional partners]** **Current Situation:** - Stage: [PRE_LAUNCH / ALREADY_OPERATING / BRINGING_IN_NEW_PARTNER] - Revenue Status: [NO_REVENUE / EARLY_REVENUE / PROFITABLE] - Existing Agreements: [NONE / VERBAL / INFORMAL_WRITTEN / NEED_FORMALIZATION] Design complete partnership framework: **1. Equity Distribution** **Initial Allocation Factors:** Equity should reflect total value contributed, not just cash: **Capital Contribution (20-40% weight):** - Cash invested in business - Equipment or assets contributed - Debt personally guaranteed **Time Commitment (30-40% weight):** - Full-time vs. part-time dedication - Sweat equity (unpaid early work) - Opportunity cost of other jobs **Expertise and Experience (20-30% weight):** - Domain knowledge and skills - Industry connections and network - Track record and credibility **Idea Origination (5-10% weight):** - Who conceived the business concept? - (Note: Ideas alone are worth little without execution) **Recommended Equity Split:** Based on inputs, calculate fair split. Example: - Partner A: 50% (full-time, $20K invested, deep expertise) - Partner B: 35% (full-time, $5K invested, complementary skills) - Partner C: 15% (part-time advisor, no cash, valuable network) **Vesting Schedule:** Protect against partner departure: - **4-year vesting** with **1-year cliff** (industry standard) - After 1 year, 25% of equity vests - Remaining 75% vests monthly over next 3 years - If partner leaves before 1 year, they keep 0% - If partner leaves after 2 years, they keep 50% **Benefit:** Ensures partners earn equity by staying and contributing long-term. **2. Roles and Responsibilities** Define clear ownership areas: **Partner 1: [ROLE_TITLE]** - Primary Responsibilities: [LIST_SPECIFIC_DUTIES] - Decision Authority: [AREAS_THEY_CONTROL] - Key Performance Indicators: [HOW_SUCCESS_IS_MEASURED] **Partner 2: [ROLE_TITLE]** - Primary Responsibilities: [LIST_SPECIFIC_DUTIES] - Decision Authority: [AREAS_THEY_CONTROL] - Key Performance Indicators: [HOW_SUCCESS_IS_MEASURED] **Workload Expectations:** - Hours per week expected from each partner - What happens if contribution drops significantly? - How to handle extended absences (illness, family leave) **3. Decision-Making Authority** **Tiered Decision Framework:** **Level 1: Individual Authority (No approval needed)** - Day-to-day operations within assigned area - Expenses under $[THRESHOLD, e.g., $500] - Tactical decisions that do not affect overall strategy **Level 2: Majority Vote** - Hiring and firing decisions - Expenses between $[LOW] and $[HIGH] (e.g., $500-$10,000) - Pricing changes - Marketing campaigns - Vendor contracts **Level 3: Unanimous Consent Required** - Major strategic changes (pivot, new business line) - Taking on debt or investment - Expenses over $[HIGH_THRESHOLD, e.g., $10,000] - Selling or merging the business - Adding or removing partners - Changing equity structure **Deadlock Resolution:** When partners cannot agree on unanimous-consent decisions: 1. **Mediation**: Hire neutral third-party mediator 2. **Advisory Board Vote**: If you have advisors, they can break tie 3. **Buy-Sell Provision**: Disagreeing partner can trigger buyout 4. **Predetermined Tiebreaker**: Designate one partner as final decision-maker for specific domains **4. Compensation Structure** **Initial Phase (Pre-Revenue):** - Partners work for equity only (sweat equity) - Define minimum time commitments - Track hours for future compensation adjustments **Growth Phase (Early Revenue):** - Agree on salary structure (equal or based on market rates?) - Define what revenue threshold triggers salaries - Example: "Once monthly revenue exceeds $15K for 3 consecutive months, partners draw $3K/month each" **Profit Distribution:** - Distribute profits proportional to equity ownership? - Or reinvest all profits for growth initially? - When do distributions begin? **Expense Reimbursement:** - Process for reimbursing business expenses - What qualifies as business expense vs. personal - Approval thresholds **5. Capital Contributions and Funding** **Initial Investment:** - How much cash does each partner commit to contribute? - Payment schedule (upfront or over time) - What happens if partner cannot fulfill cash commitment? **Future Capital Needs:** - How are additional capital needs handled? - Pro rata contributions (each contributes based on ownership %)? - What if one partner can contribute more than others? **Dilution Protection:** - If new investment is needed, how does it affect equity? - Do existing partners have right of first refusal to invest? - Can outside investors be brought in without unanimous consent? **6. Time Commitment and Performance** **Minimum Contributions:** - Full-time partners: [40+ hours per week] - Part-time partners: [X hours per week] - How is time tracked or verified? **Underperformance Clause:** - What happens if partner consistently misses commitments? - Process for addressing concerns (written warning, improvement plan) - Grounds for forced buyout if performance does not improve **Other Employment:** - Can partners have side jobs or businesses? - Non-compete restrictions during partnership - Disclosure requirements for potential conflicts **7. Intellectual Property** **Ownership:** - All IP created for business is owned by the company (not individuals) - Partners assign all rights to the business entity - Includes code, designs, content, processes, customer lists **Pre-Existing IP:** - If partner brings existing IP, clearly define what they are licensing vs. transferring - Document ownership before starting - Specify what happens to pre-existing IP if partner leaves **Confidentiality:** - Non-disclosure of business information - Protection of trade secrets and customer data - Consequences for breaches **8. Exit and Buyout Provisions** **Voluntary Exit:** - Partner wants to leave (gets vested equity only) - Remaining partners or company have right of first refusal to buy shares - Valuation method (book value, multiple of revenue, independent appraisal) - Payment terms (lump sum, installments over X years) **Forced Exit:** - Partner is underperforming or violating agreement - Requires majority or unanimous vote (specify) - Buyout at discount to fair value (e.g., 70% of appraised value) - Immediate transition of responsibilities **Death or Disability:** - Life insurance policies on key partners (proceeds fund buyout) - Disability insurance to replace income - Estate receives vested equity buyout at fair value - Payment terms to estate (installments acceptable to preserve cash) **Retirement:** - Define retirement age or conditions - Transition plan (6-12 months handoff) - Buyout at fair value over time **Tag-Along Rights:** - If majority partner sells, minority partners can sell their shares too - Prevents being stuck with unwanted new partner **Drag-Along Rights:** - If majority agrees to sell company, minority must agree too - Prevents minority from blocking attractive acquisition **9. Business Sale or Dissolution** **Sale of Business:** - Unanimous consent required to sell company - How are proceeds distributed (proportional to equity) - Earnouts or contingent payments (how split?) **Dissolution:** - Conditions that trigger dissolution (unanimous vote, bankruptcy, deadlock) - Order of payment (debts first, then equity holders) - Asset distribution process - Non-compete after dissolution (1-2 years typical) **10. Dispute Resolution** **Conflict Resolution Process:** **Step 1: Direct Discussion** - Partners attempt to resolve disagreement through conversation - Good faith effort to understand other perspectives - Document discussion and proposed solutions **Step 2: Mediation** - Hire neutral third-party mediator - Non-binding mediation (mediator helps facilitate agreement) - Split cost of mediator **Step 3: Arbitration** - Binding arbitration with neutral arbitrator - Faster and cheaper than litigation - Arbitrator's decision is final - Split cost of arbitration **Step 4: Litigation (Last Resort)** - Court proceedings if all else fails - Expensive and time-consuming - Should be avoided if possible **11. Non-Compete and Non-Solicit** **During Partnership:** - Partners cannot operate competing businesses - Cannot solicit company customers for personal gain - Cannot poach employees **After Partnership Ends:** - Non-compete for [1-2 years] in [GEOGRAPHIC_AREA] (be reasonable) - Non-solicit of customers for [1-2 years] - Non-solicit of employees for [1 year] - Ensure restrictions are enforceable in your state **12. Partner Additions and Changes** **Adding New Partners:** - Requires unanimous consent - New partner vesting schedule starts from zero - Existing partners' equity may dilute - New partner must sign onto existing agreement **Transferring Equity:** - Partners cannot sell shares to outsiders without unanimous consent - Right of first refusal for remaining partners - Transfer to family members (allowed with restrictions?) **13. Financial Management** **Bank Accounts:** - Who are authorized signers? - How many signatures required for large transactions? - Transparency (all partners have access to view accounts) **Accounting:** - Monthly financial statements shared with all partners - Annual tax filings (partnerships file Form 1065) - Bookkeeping responsibility assigned - Quarterly financial reviews **Audits:** - Any partner can request independent audit - Cost split among partners - Conducted by CPA **14. Communication and Meetings** **Regular Meetings:** - Weekly operational meetings - Monthly financial reviews - Quarterly strategic planning - Annual goal setting and performance review **Voting Procedures:** - In-person, video call, or written consent acceptable - Majority means [X out of Y partners] - Minutes documented for major decisions **15. Amendment Process** **Changing the Agreement:** - Requires [UNANIMOUS / MAJORITY] vote - Amendments must be in writing - Signed by all partners - Stored with original agreement **Legal Compliance:** - Agreement must comply with state laws - Regular review by attorney (every 2-3 years) - Update when laws change **PARTNERSHIP AGREEMENT TEMPLATE OUTLINE** Provide structured outline partners can take to attorney: ``` PARTNERSHIP AGREEMENT 1. Formation and Purpose 2. Partners and Equity Ownership 3. Vesting Schedule 4. Roles and Responsibilities 5. Decision-Making Authority 6. Compensation and Profit Distribution 7. Capital Contributions 8. Time Commitments and Performance 9. Intellectual Property Assignment 10. Exit and Buyout Provisions 11. Dispute Resolution 12. Non-Compete and Non-Solicit 13. Financial Management 14. Meetings and Communication 15. Amendments 16. Governing Law and Signatures ``` **Important Disclaimers:** This framework provides guidance for partnership discussions but is NOT a substitute for legal advice. Partners should: - Hire experienced business attorney to draft formal agreement - Ensure compliance with state-specific laws - Review and update agreement as business evolves - Keep signed copies in safe location - Discuss openly and honestly before signing **Deliverable:** Provide complete partnership discussion guide covering all critical topics, sample clauses for common scenarios, and checklist of items to address with attorney before formalizing partnership.