How to Protect Yourself in Your New Business Partnership

How to Protect Yourself in Your New Business Partnership

| Oct 26, 2016 | Business Law |

When a partnership works well, it can be an exciting opportunity to start and grow a business with someone that you love working with. In many different situations, partners will come together in order to establish and grow a business.

Sometimes these partners have different goals and aims about the purpose of the business and this can cause problems in terms of conflicts down the road. As much as possible you want to be on the same page as any other business partners.

Even in the event that you do not agree on every single aspect of the purpose of the business or how you’ll work together, you still want to have all of the details outlined in the legal contract so that you can most appropriately protect yourself going forward.

Partnership agreements and getting on the same page as soon as possible in the partnership allow you to avoid conflicts that can be costly and frustrating down the line. Read on to learn more about the key ways to protect yourself in a partnership.

Roles, Decision Making and Business Forms

All partners should have their attorneys and tax professionals at the table to discuss the best business structure for the business. A limited liability partnership is one of the most commonly selected formats because it allows partners some limited protection from the actions of the general partners.

However, an S Corporation might also be appropriate. It is a good idea to get on the same page with everyone about the roles that each partner will take early on. This may even include delegating particular management responsibilities and setting benchmark goals.

One other key aspect that you should always address with your partners is how decisions will be made, especially when a decision will have a significant impact on the business and there’s no general consensus.

Compensation

The majority of partners will have a critical interest in establishing percentages of ownership but they might also overlook issues associated with other interests they have like reservations of stock, equity adjustments, vesting schedules and allocation of losses and profits. Make sure that these are all considered and again, retain professionals where possible.

Exit Strategy

At the outset of a business it’s common to be more excited about founding and growing the business than it is thinking about the end. In fact, it can seem counter intuitive to think about closing the business and the departure of partners.

You might all be thinking that you will be involved in the business for many years to come. However, there are multiple reasons that a persona might choose to leave a company.

Some of these reasons are involuntary like sudden disability or death. Failing to plan ahead can generate a lot of legal issues or having to work with new partners like family members of the deceased individual, if you do not properly outline plans well in advance. Although it’s certainly hoped that you will continue to have a fruitful partnership with the original members for years to come, you should never assume that this is the case.

This can set you up for a big disaster and legal conflicts down the line. Many different disputes arise for voluntary reasons such as a situation where one individual wants to cash out or sell the company and remaining partners are unable to do so.

This is why any partnership agreement should consider the conditions that will affect terminating the business relationship and exit as well as when people are not able to get together on an agreement.

A buy-sell provision is strongly recommended and an experienced business lawyer in Florida can help you determine your best options here.

Methods for Resolving Disputes

If you do not include relevant details about resolving disputes, you could find yourself in expensive and lengthy litigation. Sometimes business partners will want to agree on arbitration or mediation, for example.

You can also outline selecting a forensic accountant or forensic accounting firm to determine the value of the business at any point in time as well. All of these can be extremely beneficial for protecting all partners and laying out a method so that there is no potential for disagreement down the line.
Also Read: How a Business Law Attorney Can Make Running Your Business Easier

Consult with An Expert Florida Business Law Lawyer Today

Where possible, your partnership agreement should address all key issues such as the management of the company, the format of the company when it is initially started and methods for individuals leaving the company if so desired.

Doing this and having it carefully reviewed by an experienced business law attorney is strongly recommended.

Learn more about critical agreements to protect you in a business: /blog/2016/10/top-reasons-why-your-company-needs-a-buy-sell-agreement/