Partnership Issues and the Entrepreneur

Going into business with someone else is a lot like a marriage: you will be spending an inordinate amount of time together, making decisions jointly, making individual decisions that affect the whole, and being together in both good times and bad.  Just as one should not make a hasty long-term relationship decision, so too should careful consideration go into finding the right business partner.

A partnership occurs when two or more persons join together for the purpose of doing business.  Absent a written partnership agreement (discussed below), each partner is liable for any debts or judgments taken on by the business.  Because a partnership is unincorporated, there is no limited liability.  This means that all the partners’ personal assets can be taken to satisfy lawsuit judgments or to settle partnership debts.  Further, any partner can be sued for the full amount of business debt.

Take heart, it’s not all bad.  A partner gives you someone with which to work, to share ideas, and to divide the workload.  Additionally, a partner is someone with whom you can share the financial responsibilities of the business. 

The key is to find someone with whom you can work well.  Look for someone with complementary skills.  In other words, their strengths are your weaknesses and vice-versa.  You are the yin and they are the yang.  They should share your vision and be willing to work as hard as you do.

Although not legally required, a written partnership is STRONGLY recommended.  A good partnership agreement should include the following provisions:

·        the time or money each partner will contribute;

·        the methods for making business decisions and resolving disputes;

·        the division of profits and losses;

·        the procedure for adding/changing partners; and

·        the process for winding up the business.

It’s a lot like a pre-nuptial agreement in that you and your business partner(s) are preparing for the divorce on the eve of the wedding.  However, in the absence of a written agreement, the division of assets (including the business name), profits, and liabilities will be assumed to be equal, regardless of who actually made the contribution or incurred the debt.

Before asking for someone’s hand in a business marriage, carefully consider the pros and cons.  If you find that the good outweighs the bad, go for it!  Don’t let partnership problems sidetrack you from Thinking Big!

 

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Written by: Donald R. Simon, J.D./LL.M., is president and CEO of Simon Business Consulting, Inc., a firm providing consulting services such as business and marketing plan development, incorporations, intellectual property advising, franchising regulatory assistance, and presentations on the basics of starting a small business.  Send questions or comments to don@simonbizconsulting.com.  This blog is provided as a source of information and is not to be construed as legal advice or opinion, or to form an attorney-client relationship.  For legal advice, please consult an attorney.