Should I formalise an informal partnership?

My business has a number of informal partnership and contra deals with other companies in order to promote ourselves and exchange various services. I’m concerned that if the partnerships break down then we will suffer as a business. Should you always formalise these arrangements and how can this be done once the partnership is underway?

From a “legal perspective”, the answer is yes – you should formalise these arrangements. That said, “formalising” can be as simple as half a dozen lines.

The important thing, though, is that in going through this process it forces you to think about the key aspects of the relationship.

Thus, the elements which this document (which can be as simple as a letter) should address are:

• What is each of you required to provide to the other – this should be quantified both in terms of how much and how often.
• Flowing on from this, is the amount of contribution by one of you linked to how much the other has to provide.
• How long do you envisage the relationship working – you might be surprised that one of you thinks it’s a week-by-week proposition, and the other thinks it should go on for years.
• If one of you wants to call it quits, what is the exit strategy – how much notice do they have to give.

Being the cynical lawyer, you might also want to address the “what if” scenario – if someone doesn’t hold up their end of the bargain, what are the consequences, if any?

I can’t finish without the “commercial perspective” – if the dollars involved are not significant, you are probably not going to ever go to the extent of suing on the document.

But they aren’t to know that, so at least you have some leverage and negotiating ability.