Forming a business partnership is a great way to take your online business to the next level by sharing in one or more of the partners’ profits. Whether you’re forming a business partnership with a seasoned investor, an old pal, or a trusted mentor, there are some careful considerations to weigh prior to putting your name on a binding contract. A business partnership agreement contains the initial contractual promise of support and joint venture rights, and it provides for the authority for one partner to enter into specific partnerships, as well as the authority for the other partner to enter into specified direct sales agreements. It also includes additional benefits, such as liability protection, which can protect both partners in the event that the business fails. In order to protect their own interests, many corporations require partners to hold an equivalent level of equity in the venture.
Forming a business partnership begins by choosing the specific type of entity you’d like to join. There are several types to choose from, including limited liability partnerships (LLPs), public limited partnerships (LLPs), and corporations. Limited liability partnerships (LLPs) are perfect for those who don’t wish to expose themselves to personal bankruptcy unless absolutely necessary. Public limited partnerships (or PPs), on the other hand, are great for businesses that have many employees and do not wish to have separate legal entities. However, some partnerships may choose to form an entity in their own name, instead of choosing to form a partnership.
After making the decision to form a business, you should decide whether to retain a lawyer to draft a written agreement, or if you want to deal with the liability and risk of hiring a lawyer yourself. Forming a business with the help of an attorney is often a wise decision, as this step will ensure that the partnership agreement complies with the various state and local regulations. Hiring an attorney also guarantees that your written agreement contains no clause that allows one person to take advantage of the partnership, such as one partner purchasing and reselling company stock for his/her self. Finally, an attorney can offer sound legal advice about how to avoid common pitfalls when forming a partnership and can give guidance on incorporating in general. These auctions, via sites such as Boat Parts are also available online.
The most common mistake made by novice entrepreneurs when forming a business partnership is structuring it improperly. Poorly structured partnerships tend to fail because the partners do not share enough information about themselves, they fail to provide needed assurances, they make serious mistakes, and they do not end the partnership on good terms. When preparing the partnership agreement, always remember that you are drafting an agreement between two independent parties – the one taking money out, and the one taking money in. If the partners cannot agree on how the money will be split, it is unlikely that the arrangement will stand up in court.
The other common mistake in structuring a small business partnership is failing to provide any assurances about the other person’s liability for the partnership’s debts or liabilities. For example, if the other person takes a majority stake in the business, he/she should agree on whether or not they will contribute anything towards the debt of the partnership, and what they will do if the business fails. Another important aspect is to ensure that all of the partners involved are legally and financially liable for their shares of the business. This will prevent one person from simply walking away from the business, leaving the other partners with large sums of debt.
Forming a business partnership is often the beginning of a long-term relationship, which many small business owners find disappointing. The best way to assure success is to follow through on all of the business plan strategies listed above, and provide honest and accurate information throughout the formation process. If one partner defaults on his/her obligations, this will damage the entire partnership. Therefore, it is absolutely crucial that each partner understand what financial responsibilities he/she has under his/her business plan, so that he/she does not default on those responsibilities.