Partnerships have the potential to be one of the most valuable start-up tools in business. Combining the passions, abilities and capital of two individuals has a better chance at success in some cases than the ideas and limited funds that only one person can provide. However, in many cases entrepreneurs do not make the best choice in creating their business partnerships, and it leads their new company to failure. New business owners can bypass many problems and increase their chances of success by watching for these four pitfalls when creating a partnership:
- Forgoing a written and signed agreement
To have a successful business, entrepreneurs must have a successful plan. The first part of that plan should include a detailed partnership agreement. No matter what kind of relationship partners share prior to creating a business, it is imperative that everyone utilize an agreement. It will eliminate confusion and may provide a safety net if something goes wrong.
The agreement should include detailed information about obligations and who is going to fulfil them, and what will happen if they do not live up to the agreement. These agreements should be drafted by attorneys that all parties have approved, and should be signed by anyone within the partnership.
- Choosing a partner for the wrong reasons
In some instances, individuals fail to choose the right partner because of social pressures with family or friends. Forming a business with family members takes a complicated business arrangement and combines it with family expectations and pressures. That kind of situation should only be entered into by willing parties not under duress. In other cases, individuals decide on partnering with someone for their skill set instead of hiring them due to prohibitive costs. In this case, the workers will unnecessarily share liability and may end up working against one another. In both situations, a partnership is not the answer.
- Failing to put together an exit strategy
Running a business may not be for everyone and ending a partnership is no easy task unless it has been previously provided for in a written agreement. When a partnership agreement is created, good business attorneys will provide each individual with an exit strategy that they can use should they wish to terminate the partnership. This may include options to buy out the other partners or the ability to simply walk away. Most importantly, these provisions allow partnerships to break up while still keeping a successful business intact.
- Ignoring limited partnership
In some cases, a full partnership is not in anyone’s interest. Full partnerships require liability to be shared between partners, so if one party makes a mistake, the others will pay for it too. Limited partnerships, however, create a safety net for the limited partner, keeping them free of the liability and obligations of the general partner.
Should you have any questions about creating partnership agreements or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.