03 Feb Is Your Business Partnership Headed for Trouble?
When business partners first come together, optimism is usually high. There’s energy, alignment, and a shared belief that everyone is working toward the same goal. At that stage, it’s common for partners to view a partnership agreement as a formality. Something to “get done” so they can focus on building the business.
That mindset is exactly why template partnership agreements become a problem later.
Not because templates are sloppy or illegal, but because they are designed for average situations. And partnerships rarely fail under average conditions. One-size-fits all generic agreements fail under stress.
The Real Purpose of a Partnership Agreement
Over time, partners’ circumstances change. Financial needs evolve. Effort levels shift. Risk tolerance changes. Health issues arise. Opportunities pull people in different directions.
The partnership agreement is the document that determines whether those changes lead to orderly transitions . . . or expensive disputes.
Most templates simply don’t go far enough to handle that reality.
The Valuation Problem: Where Disputes Commonly Begin
One of the most common flashpoints in partnerships is valuation.
When a partner wants to leave, or is forced to leave, the question becomes: What is their interest worth?
Template agreements often address this vaguely or not at all. Some are silent on valuation. Others rely on outdated or overly simplistic formulas that don’t reflect the actual economics of the business.
When valuation is unclear, negotiations become emotional, personal, and adversarial. At precisely the moment when clarity is most needed, the agreement offers little guidance.A strong partnership agreement anticipates buyouts and defines valuation methods in advance. Before relationships are strained.
Exit Rights: Can a Partner Just Walk Away?
Another area where templates fall short is addressing whether, and how, a partner may exit the business.
Some agreements implicitly allow a partner to leave at any time, while others assume permanence without saying so explicitly. Neither approach works well without clarity.
If a partner can walk away unilaterally, under what terms does that happen? Is there a notice requirement? Is the remaining partner obligated to buy them out? Over what time frame?
These questions tend to surface at the worst possible moments . . . when trust is already thin and the business is under pressure.
Unequal Contributions: The Inevitable Drift
Even partnerships that begin with equal ownership often evolve into unequal contributions.
One partner may invest additional capital during a downturn. Another may take on significantly more responsibility, relationships, or risk. Over time, the economic reality of the partnership may no longer match the original ownership split.
Template agreements are rarely equipped to handle this drift. They tend to assume static conditions, rather than dynamic businesses.
Well-designed agreements address how unequal contributions are handled, whether through adjustments in ownership, preferred returns, compensation mechanisms, or defined reimbursement rights.
Why These Issues Surface During “Storms”
Partnership disputes rarely arise when business is going well. They arise during downturns, liquidity crunches, personal crises, or exit events.
At those moments, partners are not looking for abstract principles. They are looking for answers.
If the agreement is silent, ambiguous, or overly generic, the dispute shifts from being a business discussion to a personal one. That is when litigation becomes more likely. And more destructive.
Scenario Planning Is the Difference
Healthy partnerships that endure over time are not built on optimism alone. They are built on scenario planning.
That means thinking through uncomfortable but realistic possibilities in advance: departures, buyouts, unequal investment, shifts in workload, and even relationship breakdowns.
This kind of planning does not signal distrust. It reflects careful stewardship of the business.
Templates Are Starting Points, Not Solutions
Templates can be useful as a reference or starting framework. The problem arises when they are treated as finished products.
A one-size-fits-all agreement cannot account for the specific personalities, capital structures, risk profiles, and goals of a real partnership. When partners rely on templates without customization, they are effectively deferring decisions that will eventually be made under pressure.
A More Durable Approach to Partnership Design
Strong partnership agreements are designed with the assumption that conditions will change and that partners will not always agree.
They create rules for how disagreements are resolved, how value is measured, and how exits occur. Most importantly, they preserve the business by preventing personal disputes from destabilizing it.
Our practice works with a limited number of closely held and family-owned businesses each year, helping partners design agreements that reflect how businesses actually evolve. Not how they look on day one.
If you are entering a partnership or relying on a template agreement that hasn’t been stress-tested against real-world scenarios, you can apply to work with us here:
If we’re a fit, we’ll help you move beyond generic language and build a partnership agreement designed to withstand change, pressure, and the inevitable storms that come with building something meaningful together.