Let me quickly clarify that this post is not going to debunk the myths of forming a partnership with an outside company. Rather, it’s focused on entrepreneurs who decide to form a partnership, rather than a limited liability company (LLC), corporation, or sole proprietorship, as their legal structure. What kinds of myths surround this entity type? Let’s take a closer look.
Your partnership does not need a written agreement.
Generally, when an entrepreneur decides to form a partnership they are working alongside another person. This can be a family member, friend or another like-minded business individual. You may think that given the nature of your relationship together — which is probably a long-standing one — you do not need to establish a written agreement. If you’re on the same page about every decision and passionate about the business, nothing could possibly go wrong…right?
While this is what every entrepreneur hopes will happen, the reality is that things do change in life and in business. Some changes may be unprecedented, like the sudden, unexpected death of a partner. If you’re forming a partnership entity, it’s in your best interest to draft a written partnership agreement so you will know what to do next. This agreement sets expectations for each partner and essentially helps keep one another on the same track.
A few recommended areas to cover include the partnership’s term (when it officially began and what the termination procedure looks like), capital contributions from each partner, the process for admitting a new partner or what to do next if a partner should choose to withdraw, and what should be done if a partner passes away.
Decisions should be made quickly.
If there’s one aspect of a partnership that partners will be continually working on together, it’s making decisions. The decision-making process should not be treated as something to quickly get out of the way unless it’s for a very simple decision like what time you’ll both go to lunch together.
Take your time and think things through when making decisions in a partnership. Every partner must express their consent for a decision to go into effect. The more serious the decision, the more logical it is to think and talk it over — and even put the decision in writing once it is agreed upon. If you choose to rush through the process, just remember that the actions of those partners will be held liable for the decision made, whether the outcome is good or bad.
It is not necessary to seek out legal counsel.
Why would a lawyer or attorney need to assist partners in a partnership? You may bristle at the thought of being counseled by an outside party when you feel as though you know what you’re doing, but it’s really helpful to have a professional assist you especially in the early days of being in business.
Being in a partnership means sharing profits, losses, and responsibilities together. Sometimes you may know exactly what you’re doing, other times you may feel like you need someone with legal expertise to help out or even ask questions. If you feel like you could use a little legal assistance, talk it over with your partner, come to a decision together, and reach out to a lawyer for a consultation.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @mycorporation.