Provided by: Jennifer Kirschenbaum, Esq.
December 15, 2020
Question:
Hi Jennifer
My partner and I have been trying to formalize our arrangement for a long time. We have an old agreement that does not reflect how we operate. What can we do to move updating along? Also, what happens if we never get around to it?
Thank you,
Dr. P
Thank you,
Dr. P
Answer
I see this scenario often and around this time of year, too, so you are not alone. Partnership arrangements (formally a partnership agreement, operating agreement or shareholder agreement) is usually compiled when you first form your entity, put in a folder and forgotten. Changes are made to compensation arrangements and expenditures and authority, and it is typical for the partnership arrangement to evolve without the partnership agreement being updated.
The best way to proceed when you realize its time to address is to formalize the terms between you and your partner in writing, perhaps in a memo of understanding or a term sheet, It's a good idea for us to discuss terms to address before you start the conversation so you can have an exhaustive list, or I can help with form and format (so the administrative is not an insurmountable hurdle). Once terms are formalized, we can move on to updating or replacing the prior draft. And, if you never get that far, at least you are starting to build a paper trail of understandings between the parties.
Preferably, you would get around to it and the partnership agreement would reflect the intention of the parties. This way if there is ever a dispute between the parties the governing document between you reflects the current arrangement and intentions.
The best way to proceed when you realize its time to address is to formalize the terms between you and your partner in writing, perhaps in a memo of understanding or a term sheet, It's a good idea for us to discuss terms to address before you start the conversation so you can have an exhaustive list, or I can help with form and format (so the administrative is not an insurmountable hurdle). Once terms are formalized, we can move on to updating or replacing the prior draft. And, if you never get that far, at least you are starting to build a paper trail of understandings between the parties.
Preferably, you would get around to it and the partnership agreement would reflect the intention of the parties. This way if there is ever a dispute between the parties the governing document between you reflects the current arrangement and intentions.
