Many business partnerships lack a strong legal foundation
Business partnerships can be a great way to launch a business. With a shared vision, complementary skills and increased start capital, business partnerships can drive the success of a company. However, many partnerships are built on a weak foundation, without a proper legal agreement that clarifies how the business will operate under the partnership. There are seven mistakes that are often made by business partners.
First, sharing capital with your partner can become a problem if there was no arrangement made in the first place. While you might hope that your partner will be fair and ethical, there is no guarantee for it. Having an “associative” arrangement that states how expenses are shared will protect your investments in the company.
Second, don’t look for a partner when you could simply hire someone. If you need someone with a certain skill set, hire a qualified person as an employee or independent contractor. Even though that’s a significant expense, you will be able to keep all the equity in your company.
Third, not creating a formal Operating Agreement can turn conflicts into costly litigations. You and your partner should hire an attorney in the beginning to define every detail of your partnership. Having a legal agreement will help address possible issues beforehand and solve disagreements easily on the back end.
Fourth, equal liability can be a source of conflict. Partners can avoid disputes by creating a limited partnership where one partner is not liable for the actions or obligations of the general partner.
Fifth, not defining an exit strategy can jeopardize the business. The Operating Agreement should include a section that lays out what happens if one partner decides to leave or buy out the other partner.
Friendship or partnership? Read mistake 6 and 7.
Taking care of formalities early in a business partnership saves you from possible legal battles later on. Learn more about our 4-step process of creating Operating Agreements at http://speralaw.com/louisiana-operating-agreement