Partner
Starting a business brings the allure of financial reward along with the thrill of building and growing a successful company. However, it’s important to approach any business venture with a sober appreciation of the risks and potential liabilities. This is especially the case for those wishing to begin a business partnership.
Working with another person or group of people brings its own hurdles that are unique to the partnership form of business. Before launching your partnership and even after you start it, there are some key questions you must ask. The Ventura County business law firm of Schneiders & Associates, LLP is here to help you answer them.
What Are My and My Partners’ Business Goals?
You must find out whether you and your business partners are aligned on the same goals, as this could affect the trajectory and ultimate fate of your business. One partner may want to invest in the company for the long term to provide steady income for their family, while another may want to quickly grow the partnership into something profitable and then sell it off. Be sure to have a serious discussion with all partners and consider memorializing your business objectives in your partnership agreement.
How Much Time Can Each Partner Commit?
Running a business in California requires dedication, and a major component of that is devoting enough time to operating the company. Find out each partner’s commitment from the beginning, including whether any partners will work the business part- or full-time. It may be possible for each partner to develop a plan whereby they gradually shift as much of their time as they reasonably can into the partnership, treating it with the attention it deserves.
How Will the Partnership Treat Cash Investments?
Partners are expected to invest cash into the venture, but the question then becomes how the business will view those investments. For instance, the money may be treated as a debt that must be repaid or as the purchase of a higher share of the profits. There are tax implications to how the money is treated, so speak with an experienced accountant before making a decision.
How Comfortable Is Each Partner With Change?
Although change – in the economy, in the partnership, or in the private lives of each partner – is inevitable, there are some points on which each member of the organization will refuse to budge. One partner may insist upon the business always producing or selling a particular product, while another is dedicated to serving a specific market demographic. Learning early what each partner’s sticking points are can help avoid conflict while keeping the partnership adaptable to change.
What Will Each Partner Get Paid?
Compensation can be a contentious issue, with questions such as how much each member should be paid relative to their investment (and not just of money, but of other resources) and who gets to change compensation rates in the future. Pay structure, and how it might change with time, must be worked out in precise detail so disputes become less likely.
What Are the Ownership Percentages?
A related and also potentially volatile question is each partner’s ownership interest in the company. Shares will be based on such factors as cash investment, the resources and talents each partner brings to the partnership, and each member’s time commitment.
How Will Decisions Be Made?
There are different options for allocating decision-making authority, including by designating shares as voting or non-voting and by establishing a board of directors. Partners must decide which issues must be determined by a board and which can be determined by individual partners (the latter generally including everyday decisions rather than more significant ones). Memorializing the decision-making structure in the partnership agreement, with the help of a Ventura County business lawyer, is imperative.
Which Contracts Must Be Executed?
Partnership and shareholder agreements are common types of contracts, but not necessarily the only ones. Partners may wish to require each member to sign a non-disclosure agreement and a non-compete agreement. These must be carefully drafted to both give the intended legal effect and to be enforceable in California.
How Can Partners Properly Exit the Business?
It is inevitable that partners will leave the business to retire or pursue other ventures. However, there is a proper way to do this that will avoid unnecessary strife among the partners who decide to stay. Define the exit procedures early so disputes will be minimized.
Who Can Fire Partners, and on What Grounds?
There should be policies in place which give the partners sufficient reasons to terminate those members who are not living up to their responsibilities or otherwise causing problems for the business. Who has the authority to make the decisions, on what grounds, and what should the procedures for doing so look like?
What Is Our Business Succession Plan?
A business succession plan exists to prepare the partnership for what happens when a partner leaves the company because of retirement, death, or incapacity. There should be discussions about such topics as what will happen to the departing partner’s shares and how the business will continue operating in their absence.
Our Ventura County Business Lawyers Are Ready to Assist
The above questions may seem challenging, perhaps even daunting, as you launch your partnership. But asking and answering them now can reduce anxiety and help you and your partners focus on making your business everything it deserves to be. Reach out today to Schneiders & Associates, LLP to tackle your partnership’s legal matters.