Managing Partner
Going into business can be exceptionally exciting, nerve-racking, invigorating, and even scary. Whichever way you slice it, all business is risky, and entrepreneurs are sometimes held personally responsible when a business fails and becomes a financial disaster.
Now take all that risk and multiply it by two, and you’ve got yourself a business partnership.
If you’re starting a business partnership with a colleague, friend, peer, or even romantic partner, there are a whole host of issues you need to address before signing anything.
You need to make sure that you’re compatible in the way you want to run a business and also in how your priorities line up. If you rush into a business partnership without addressing a number of vital topics, you are leaving yourself vulnerable to severe financial and professional ramifications.
What constitutes a business partnership?
A business partnership is a legal arrangement in which two parties — the two business partners — write and sign an agreement in which they commit to working together in order to further both parties’ interests. There are four types of business partnerships:
- Limited Liability Company (LLC) partnership
- Limited Liability Partnership (LLP)
- Limited Partnership (LP)
- General Partnership (GP)
When choosing one of these four structures for your business partnership, it is important to research which partnerships are available to form in your state, as well as which types of partnerships are permitted for the kind of business you are building.
What are the essential topics to address when entering a business partnership?
Before you enter a business partnership, it’s important to ensure that you align with your prospective partner on some key issues. Here are a few topics you should make sure to address with your prospective partner:
Your Exit Strategy
What better way to start a business partnership than discussing what will happen should the situation disintegrate? Unfortunately, there’s always a chance that your business partnership won’t work out, so you need to make sure that you have a clear, comprehensive exit plan written down and agreed upon by both partners.
Contributions/Investments
Before entering into a business partnership, it’s important to lay out expectations for how much money each partner is going to contribute to (or invest in) the business, both at the beginning of the venture and throughout its tenure as an entity.
It’s also important to discuss how much time and responsibility each partner is expected to contribute to the business.
Distributions
You and your business partner need to figure out how the funds that you (hopefully) reap from your business will be distributed. Make sure to sign a written agreement outlining how business profits will be allocated and who will receive their share of the profits first.
Management
Make sure to discuss the management element of your business before entering into a business partnership. You need to discuss with your prospective partner how long-term and day-to-day management responsibilities will be allocated throughout the tenure of your business.
Type of Legal Partnership
As mentioned above, there are four different legal classifications under which your business partnership could potentially develop. You and your prospective partner need to make sure that you are on the same page regarding whether you want your business partnership to be classified as an LLC partnership, an LLP, an LP, or a GP.
Seeking Legal Aid as a Member of a Business Partnership or When Entering into a Business Partnership
Whether you’re considering entering into a business partnership, have already entered into a business partnership, or are considering terminating a business partnership, your best option is to get in touch with an attorney who is experienced in business litigation.
If you live in New York City, contact Woods Lonergan, a firm specializing in business law. Our team of skilled attorneys will guide you through your legal journey with dedication and expertise.