The Importance of Well-Defined Partnership Agreements

Are you thinking about going into business with someone or are you already in business with one or more people?  If you haven’t heard it before, partnerships are very often tough relationships.  You can liken a business partnership to a marriage and you know how high the divorce rate is in this country.  The relationship requires work, good communication, compromise, well-defined roles, responsibilities, and boundaries.  We can’t count the number of partner disputes that have ended in lawsuits, dissolutions, hurt feelings and the number of times someone has said, “I wish I would have just done this myself.”  Our firm has also worked with many entrepreneurs, who simply refuse to have partners in their new ventures due to negative experiences with past partners.  That said, partnerships can also be necessary and extraordinarily beneficial when a team can’t figure out how to work together effectively and efficiently toward common goals.  A well-defined partnership agreement is the main tool to start your joint venture on the right foot, prevent issues, and provide the tools to resolve the inevitable issues that come up along the way.

Contracts between business partners have different titles, depending what type of entity: In Corporations that agreement is called Bylaws and Shareholder Agreements; In an LLC, this agreement is referred to as Operating Agreements and Member Agreements; and in Partnerships this language would be in Partnership Agreements.  For the purpose of this discussion, we will refer to them collectively as partnership agreements. 

We know what you are thinking - My partner and I have talked this through and we are both on the same page.  Great!  Then even easier to get in writing and signed by all partners.  If it isn’t, your mutual understanding isn’t worth the time it took you to formulate it.  Further, an experienced business attorney can give you guidance on issues you haven’t thought to get on the “same page” about.  What happens if all partners don’t agree at some point in the future?  Deadlock between partners destroys business all the time.  Do you know what corporate formalities, documents and records the law requires you to keep up with?  Do you know what the most beneficial tax structure for your business will be?  How will you share profits?  How will you share workload or how will you compensate partners when workload is uneven? Will partners be employed by the business?  What happens when a partner wants to get out of the business?  What happens if a partner dies, becomes incapacitated or disabled or gets a divorce from a spouse?  Is the business subject to division in a divorce action?  Would it be forced to file bankruptcy? What happens if after you split, your partner starts a separate competing business or your partner sells their share of the business to a 3rd party?  We have solutions to all these scenarios.               

 A partnership agreement addressing and providing solutions to these questions, and the individual issues you might anticipate in your specific business, are essential to maintaining a strong, productive, and profitable business partnership.  If you are contemplating a business partnership, Don’t go at it alone! Let Lubnau Law help set you up for success!  Call us at (307) 682- 1313