If you've decided to enter into a business partnership with someone else, it is crucial that you understand how to fully protect yourself. Here are three things that are essential:
1. Make Sure the Partnership Is a Written Agreement.
First and foremost, you need to make sure that you are protected by having a written partnership agreement. It is not required, but it is highly recommended. If you are going into business with your best friend or a family member, then you may feel extremely reluctant to ask for a written agreement. Ultimately, you are afraid that the other individuals is going to be insulted or insist that something like that is not warranted.
However, a written partnership agreement is good for both partners involved. It will clearly outline whose role is what, what the expectations of each partner are and the interests of each partner. That last one could include how disputes are handled in the future should one arise. An agreement on paper, signed and dated by all partners, will ensure everyone knows what will occur if a dispute comes up and how that dispute will be handled and resolved.
2. Shield Yourself From Debts of Your Partners and the Partnership Itself.
In the written agreement, you will want to make sure that you are protected in terms of debts. You will limit the maximum amount of debt that can be tied to the partnership by one single partner, unless consent is provided from the other partner. Without taking this step, any partner will be able to bind the partnership to a debt or another business agreement. If the business cannot fully satisfy the debt, such as a high interest loan that was not approved by all partners, then you may end up being held personally responsible and liable.
3. Create an Exit Strategy…Just in Case.
No one knows what life is going to throw at them, so it is crucial that any person looking to join a partnership ensure that they have an exit strategy, or a buy-sell clause. The written agreement for partnership can clearly define what will occur if one partner chooses to opt out of the business or if one partner passes away. In most cases, the other partner or partners will be provided the chance at buying the share of the withdrawing partners. By agreeing to these terms early on before they are actually necessary, you will ensure that all terms are 100 percent fair.
If you need help forming a business partnership agreement or have any questions regarding the formation of a business, consult with a commercial litigation attorney for assistance and guidance.