Partnerships: What's the Right Structure for You?
As a small business attorney, I often have new prospective clients who are looking to form some kind of new partnership. The early stages of forming a business are exciting, but it’s important not to lose sight of key details as you venture forth imagining the possibilities ahead.
Setting expectations for you and your partners in your small business partnership is an absolute must. Why? Disputes between partners are among the most common causes behind failed small businesses. By setting expectations early, you can protect your
Fortunately, you can head off a great many of these disputes with a solid set of governing documents for your partnership. For limited liability companies, we call these operating agreements, and for corporations these are bylaws or a shareholder agreement. And there are all kinds of ways to draft these agreements to create the ownership structure that best fits your situation.
Is it expected that each partner will contribute equally to the new venture as a full-time or part-time job? If so, you should consider having employment agreements for the partners that set such expectations as a weekly hourly commitment.
Are there unequal initial contributions of capital? Sometimes one partner is putting in the money for the venture, while the other partner is putting in the sweat equity. You need to determine what is an appropriate ownership percentage for each partner, and consider allocating a certain amount of the funding partner’s investment as a loan, to be paid back before the owners take any draws.
Finally, though everyone is loathe to think about this when forming a business, one of the most important provisions for a business’s governing documents is a mechanism for dissolving or breaking up the partnership--what is often referred to as a “business divorce.” If you don’t have business divorce provisions, but you have two or more partners, then your business is at a heightened risk. This is because your only available method for ending the relationship is through a lawsuit for judicial dissolution--and such lawsuit are monumentally expensive!
Whether you’re forming a new business and want to ensure you and your partner are protected through the process, or you’re already at the point of dispute with your partner and may need to navigate a way out, Asheville Legal’s small business lawyers are here to help. Give us a call today!