Partners and Partnership Agreements – Proceed at your own Risk!
I usually tell my new business clients that partners can mean problems! Believe me, I am not opposed to adding new leadership to growing companies. I just want clients to have their eyes open wide! Here are a few pointers.
1. Always have a Partnership Agreement.
Don’t add a partner unless you have a partnership agreement which is the fine print determining the rights and obligations of the parties. Typical issues which are spelled out in partnership agreements include how ownership is divided, how voting rights are decided, whether majority or unanimous votes are required, adding and getting rid of partners, and even what happens if your partner dies or is divorced.
2. What if I put off these hard questions?
Lots of luck to you and I hope you are ready to pay the attorney piper. If the above difficult issues are not set forth in the partnership agreement, the disputes will be more difficult and expensive to resolve. Don’t be afraid to ask tough questions in preparing the partnership agreement.
3. Can I draft the Partnership Agreement myself?
You can – but it is not recommended! Lawyers who practice in the area of business law are trained in the complexities of preparing a partnership agreement. If it was easy, everyone would be doing it. And – please – do not pull down some templates online. The use of the wrong words or even punctuation can totally change the meaning intended. Also, keep in mind that the party who drafts the agreement comes out with a short stick in litigation. If there is a gray area in the use of a word or phrase – what lawyers refer to as ambiguities – it is construed against the person who drafted the partnership agreement.
4. Do I need a Partnership Agreement if I have an LLC – Limited Liability Company?
Yes! It’s just called a “Company Agreement” and serves the same function.
5. Do I need a Partnership Agreement if I have a Corporation?
Yes! It is just called a “Shareholder Agreement” and serves the same function.
6. What if my partner is a family member or friend?
All the more reason to have a partnership agreement! Family disputes are the worst cases to pursue in litigation because lots of emotions get involved. Always spell out the terms and leave nothing to chance!
Don’t bring on a partner without a formal written partnership agreement. Key terms need to be spelled out absent which you can count on expensive litigation if all heck breaks loose and your former colleagues “lawyer-up”!
Contact us for more information on Partnership Agreements, or to set up an appointment for a free consultation.