Now that you’ve selected your Business Name, have determined your Business Structure, and have obtained your Employer’s Identification Number (EIN), you may not be quite ready to open the doors to your business just yet. In this chapter, we will cover two different types of agreements that many overlook or fail to properly understand their uses.

Within your industry, you are the considered an expert or at least encompass the skills to manage your business with your strategic abilities to do so. For others, you may need to hire or engage others to complete certain tasks that you may not possess the skills or time to achieve; therefore you may need to enter into an agreement.

Partnership Agreement

A Partnership Agreement is a written agreement between two or more people who join as partners to form and carry out a for-profit business. Most Partnership Agreements contain the following:

·        Nature of the business

·        Capital contribution that each party invested to start the business

·        Each person’s responsibility as it relates to how the business should run or daily operations

·        Determination of how the profits will be paid, divided or invested

·        Exit strategies

Many enter into business with a close friend or relative who may add value to your company or business. Keep one thing in mind: “what separates friends fast”?  MONEY!  If you’re starting a business or have decided to add a partner to your business, it is recommended that you obtain a Partnership Agreement. Business is business. Friends are friends.

Sub Contractor Agreement

When entering into a Sub Contractor Agreement, the terms appear similar to those of a Partnership Agreement; however, they are completely different. A Sub Contractor Agreement is an agreement amongst two or more business owners or parties whereby a business is NOT being formed; however, already established.

A Sub Contractor Agreement can take place between YOUR BUSINESS (the business you own) and someone else who may represents a different business. You may want to hire this company to carry out a specific deed or task.  In many cases, a new business owner may subcontract with another company or firm to create a website or marketing materials; use of a call center; use of a skill set to complete sales and increase profits.

REMEMBER: a subcontractor is not your employee. And, they do not hold a percentage of ownership in your business. You can never treat a subcontractor as an employee as they are not entitled to those benefits. A subcontractor normally submits his own invoice for the services rendered whereby you are to remit payment.

REMEMBER: whenever you utilize the services of a subcontractor and have paid them at least $601.00 in a calendar year, you must submit an IRS-1099 form so that the subcontractor can resolve his taxes between his company and the IRS.

If you failed to provide an IRS-1099 form for you subcontractor, you are then paying for work to be performed “under-the-table”. This is a NO-NO! Ask yourself this question: “why should I pay someone “under-the-table” for work to be performed, then I have to pay the Internal Revenue Service (IRS) for monies I never got to enjoy”? Basically, you are paying the taxes for someone else. 

Know the difference between a Partnership Agreement and a Subcontractor Agreement. Though they are similar in verbiage, they are completely different.

REMEMBER: a subcontractor is not your employee.