Best Practices for Forming and Ending a Business Partnership
You have to admit, it’s an attractive prospect. Allowing another person to take part ownership of your business would give you more free time, fewer responsibilities, and ease a lot of the stress that has kept you away from home. But does a business partnership offer more risks than rewards?
What to Consider Before Forming a Business Partnership
The first thing you must know is that not all partnerships require legal designation; if you wish to go into business with someone, they are essentially your partner. However, without legal protection, a partnership can easily affect for your business, professional relationships, and financial stability for the worse. You should consider the following before entering into a business partnership:
- Shared authority. In most partnerships, each individual is given the power to speak for the whole company. This means you relinquish control of the business to a partner whenever you are not present (and in some cases, even when you are). If you are uncomfortable granting someone the ability to enter into contracts or business deals with clients without your consent, you may want to reconsider the partnership.
- Shared liability. If the business is not protected under an LLC, each partner can be held liable for the full amount of any company debt—and if one partner does not pay, the other may be sued for the full amount. Creditors can force a partner to sell his possessions, including his house, car, or other assets, to make up the debt.
- Dissolution. Many people make the mistake of entering into a partnership without considering what will happen when the partnership ends. If one partner simply leaves the business, the other may be left with any remaining business debts, obligations, or unfulfilled services.
How to Enter into a Fulfilling Partnership
All partnerships should begin with a written agreement between the parties outlining each partner’s rights, responsibilities, and shares of profits. The agreement should have a provision for the ending of the partnership, and allow a buyout option for each partner if the other leaves, retires, dies, or is unable to perform his duties.
If you want to fully protect your existing business, the easiest and wisest move would be to create an LLC or a limited partnership for your new owner. Ric Blackwell is an experienced Collier County business lawyer who can help you with every aspect of creating, running, and dissolving your company. Click the contact link on this page to find out how we can help.