Partnerships are complex. Anytime we are involved in the formation of a company with multiple owners, we typically refer to it as a “partnership.” Now, the legal term partnership is different than the concept of partnership for economic purposes. An economic partnership can take many forms. It might be a partnership agreement, it might be an LLC agreement, or it might be a corporation. The form legally is tailored to a situation, and that’s something you can work on with your legal advisor. Regardless of legal form, there are certain things that need to be understood in a partnership agreement. Its important to understand how things are going to be divided. It is important to understand how the business is going to work. It is important to make sure the business has a clear path forward, and that everyone is avoiding future disagreements and problems.
That means advanced planning, preparing for what if scenarios, and understanding how the business is going to grow and evolve. We want to spend time and attention on that. Of course, you want to deal with 4 D’s, 4 things that are likely to happen in the life of the partnership.
#1 Death. One of the owners may die.
#2 Disability. There is a possibility that somebody involved in a partnership may become unable to work. What are we going to do to keep the business moving forward? What’s going to happen to take care of the disabled person? How are the economics going to work?
#3 Divorce. What if one of the owners gets married and gets divorced? What happens to that ownership interest?
# 4 Disagreement. What happens if the owners start to disagree about the future of the company? This is much more common than you would think. It is not uncommon for owners to be in the business for some time, things to evolve, and then disagreements start happening.
What’s been your experience with company formation? What types of issues are you looking out for? What’s been the problems that you’ve run into? Please share your thoughts in the comments below.
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. This article should not be treated as legal advice to any person or entity.
About the Author
Shawn McBride — R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can reach R. Shawn McBride at [email protected] or 407-517-0064.
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