Forming a partnership is a cheap and relatively easy way to start a new business. A partnership also offers significant flexibility in management options. You can allocate management decisions and other responsibilities among partners as best suits your business needs and each partner’s strengths.
Risks of various partnership organizations
For general partnerships, the drawback is liability and the risk to your personal assets. You can potentially be held fully liable for all partnership liabilities, debts, and obligations, including those incurred by other partners. If the partnership owes a debt, and only you have the money to pay, you may have to pay. A limited partnership or limited liability partnership can decrease your personal liability depending on your role in the business.
Considerations for forming a business partnership
This is why, prior to executing a partnership agreement, you should sit down and talk with everyone involved. Figure out who will take on what role in the business and which responsibilities will fall to each person. This will also make dividing up shares of ownership in the business that much easier.
Here are some of the issues you should work out in that initial conversation:
- Who will make decisions? Will one person be in charge of decision making or will there be a vote?
- Will there be actual job titles or just general roles?
- Who will deal with product development?
- Who will handle administrative tasks?
- Who will handle accounting?
- Who will deal with customers?
- Who will be in charge of marketing and sales?
You need to consider each partner’s strengths and what they bring to the table. Make sure each person is best suited to their particular role. Sometimes egos can get in the way and multiple people believe they should be in charge. This is why it’s good to make wise decisions when choosing business partners. You should partner with talented people that are confident in their abilities, but also humble enough to recognize if they are not suited to a particular position. If any of the partners have previous relationships with each other, this should be taken into account. Someone that was in charge during a previous arrangement might not take well to a more limited role.
Whatever you and the other partners decide, you should get it into a written partnership agreement. A partnership agreement can help you define the roles and responsibilities of each partner and avoid future conflicts. You should also consider filing the optional Statement of Partnership Authority with the Secretary of State. You will be able to specify or limit transactional authority for each partner to help reduce conflicts.
San Diego Law Firm can help with your business partnership agreement
If you’re looking to form a business partnership, we can help you draft an effective partnership agreement that clearly defines the role of each partner. We can also take a look at your situation and business goals and see if forming a different type of entity (like a Limited Liability Company) is more appropriate.
For more information or to schedule an appointment, click the button below, or call us at 619-794-0243. We look forward to helping you.