By UpCounsel Contributor
Like all relationships, business partnerships can be volatile and quickly turn sour when you least expect them to. In fact, according to Business Insider, 80% of business partnerships crash and burn. Therefore, no matter how much you might currently see eye to eye with your partner, it’s crucial to develop a partnership contract that adequately protects your interests in case the partnership dissolves in the future. A good contract will also help you avoid vicious (and costly) legal disputes down the road. Here are four strategies to guide you in negotiating a software partnership contract.
1. Identify the Value of Each Individual’s Contributions
Although each deal is different, there are several key contributions that typically determine the terms of a software partnership contract. For example, the initial cash investment by each partner and assets invested by the partner, such as equipment and sales data like mailing lists, are important elements to consider.
Once the contributions of each partner are established, the next next step is to assess the value of those contributions. Partners often choose to base it on fair market value, and to calculate it with a formula or via a third party appraiser.
2. Develop an Exit Strategy
In the event that one partner decides to leave the partnership, he or she will want to have a clear exit strategy that outlines how he or she will be compensated for all of the time and money invested in the project. The details of this compensation are called “buy out terms,” and should include how the exiting partner can sell their interests.
“One size fits all” contracts are hardly ever right for anyone.
3. Maximize Your Leverage
Partnerships are rarely, if ever, completely equal. Because of one partner’s network or special expertise, he or she may be far more crucial to the company than the other partners. If it seems that this may be the case, don’t hesitate to point this out and use it as leverage. It’s also never a bad idea to consult an attorney to determine an appropriate partnership agreement for your particular circumstances.
Additionally, consider each partner’s long term commitment to the company. If you plan on sticking with the company for years, through all of its ups and downs, while your partners are unwilling to make such a vow, use that as leverage. Highlight your promise in order to tip the terms of the contract in your favor.
4. Avoid Template Contracts
Whether you’re talking clothing or contracts, “one size fits all” solutions are hardly ever right for anyone. That’s why using a template contract is a risky decision, and one that could impact your business and your partnership for years to come. Template contracts are likely to leave out important considerations and include some that simply aren’t relevant to your situation. For example, they won’t account for the unique expertise and contributions that each partner provides and it won’t provide an exit strategy that is both detailed and understandable as well as feasible.
On the other hand, an attorney will be able to draft a contract according to their client’s unique circumstances. With any given contract, there can be more than 50 alternate clauses, and only an attorney is capable of drafting them to fit the client’s specifications.