Most founders I talk to in the US either don't have an operating agreement or have one they downloaded from the internet and never actually read. Both situations end the same way – someone gets screwed.
The biggest issue isn't what's in the agreement. It's what's missing. I've watched partnerships implode over three things that almost nobody addresses upfront.
First one is the buyout trigger. Your partner wants out, or you want them out. What happens? If your agreement doesn't spell out exactly how a departing member's interest gets valued and purchased, you're looking at months of negotiation or worse, litigation. I've seen partners deadlocked for over a year because neither side could agree on a valuation method after the fact. Put a formula in now – whether it's a fixed multiple of trailing revenue, a third-party appraisal, or book value. Doesn't matter which one as long as it's there.
Second is the capital call problem. Business needs cash. One partner can contribute, the other can't or won't. Without a capital call provision that addresses dilution, you end up with one partner funding the business while the other maintains equal ownership. That breeds resentment fast. Your agreement should specify what happens to ownership percentages when one member contributes more capital – does the non-contributing member get diluted? Do they have a cure period?
Third one is decision authority. Who can sign a lease? Who can hire employees? Who can take on debt? If every decision requires unanimous consent, your business will grind to a halt. If one partner has unilateral authority over everything, the other is basically an employee with equity. Most good agreements split decisions into tiers – day-to-day operations vs major decisions – with different approval requirements for each.
The time to negotiate these things is when everyone still likes each other. Once there's real money or real disagreement involved, everything gets 10x harder and 10x more expensive.
What's the clause you wish you'd included in your partnership agreement?
This is general information only, not legal advice. No attorney-client relationship is formed by this comment. Consult a licensed attorney for advice specific to your situation.
Your operating agreement is probably going to destroy your partnership. Here's what I keep seeing.
byu/Benemerito_Law inEntrepreneur
Posted by Benemerito_Law
2 Comments
This hits hard because most people think about the fun part of starting together… then reality shows up. buyout terms and decision power are where things quietly fall apart fast
The only thing I’d add is that even in the best case scenario – the business is wildly successful *and* somehow everyone still likes each other – it becomes infinitely more complex to add this kind of structure later. Agreements like these can always be amended after the fact, a business can be restructured if necessary if partners decide that certain provisions aren’t working for whatever reason. But it’s so much easier to just give yourself a basic foundation as a starting point, and make changes as necessary over time.