You know there’s an interesting thing about partnership agreements. They’re formed when companies start and then usually they sit in a file drawer for a long period of time. In modern times they often sit on floppy disks, but the file drawer is still the most prevalent for many of the older companies. When I have companies come to me with a partnership problem, they literally have to scan a copy of their LLC partnership, corporation, or limited partnership documents to me so that we can start the analysis. Of course, many people now have these things filed electronically and saved on their computers.
In any event, one thing that’s common is these things typically sit in a dusty or forgotten file drawer until there’s a partnership problem and then everybody hangs on to every word. Every meaning is key and everything matters. As the lawyers get involved in a partnership dispute, what was intended by the original partnership agreement and the written word on the paper become critical to the outcome of the matter. There are lessons to be learned here; we need to revisit these partnership agreements more. We need to know what they say. A properly done partnership agreement can be the lifeblood of your business. It can be the organizational tool that keeps the partners working together, that governs how things are done to make sure everything flows correctly.
In order to this, just like changing the oil in your car, you need to go back and revisit your partnership agreement. You need to look at how things are flowing and you need to change things up as necessary so that things don’t become stale or damaging to the internal systems. What you want to be looking at periodically is what’s in your partnership agreement. Grab that dusty partnership agreement, open that rarely opened file on your computer, and take a read. What does it say? What does it say with respect to decision making? With vetoes? With profit allocation, and do these things still make economic sense in light of your overall business? Maybe they do, in which case you’re fine, but in most cases, we find that they don’t and so that opens a revision process, which is a very powerful time for a partnership. It’s a great time to get everybody talking, discussing, and thinking about the business.
It’s a great time to look at how things are operating and make sure everything’s operating acceptably. But it’s also a great time to think about the future, how the pieces fit together, and how they’re going to continue to fit together in the future and start fine tuning. Make radical adjustments if necessary. The time to do this is while the partners are agreeing and on good terms and while they’re thinking about their future. This allows the partnership to be ready for the changes and evolution in business and in people’s personal lives. If you haven’t revisited your partnership agreement in some time, now’s the time to look at it.
Check out our other blogs about partnership agreements and revisions and key terms (http://www.rsmlawpllc.com/how-much-does-it-cost-what-you-really-need-to-ask/). What are you doing with your partnership agreements? Have you looked at yours in a long time? Exactly how bad a day is it when you take a look at it? Let us know in the comments below. We’d love to hear your thoughts and experiences.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com Goran Anicic.
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