Partnership agreements are rarely as simple as people think they are. I spent a lot of time working on partnership agreements. What I find interesting is a lot of people think partnership agreements are simple. Give me a standard partnership agreement. We’re just doing a normal partnership agreement. These are the types of statements I might hear when somebody’s calling us, but there is a lot more complexity to partnership agreements.
Fundamentally, every partnership is different. There’s different understanding and you need to dig in and understand that dynamic. How are the partners willing to work together? How are they going to share profits? How are they going to manage control? Who’s going to really make the decisions? Who’s going to make day to day decisions? Who’s going to make major decisions? How’s that going to happen? Do we have one owner that has more ownership than the other? What liquidity, what strategies do we put in place to make sure that that person leaves, they get paid. What happens if the partners go in separate directions? It’s very rare that partnerships will stay together forever. Usually, one partner is going to have a desire to leave before the other partner. Timing is difficult to get perfect so we need to have plans for this timings.
We also need to deal with standard contingencies. One set of criteria I run all my clients through is what I call the 4 D’s: Death, Disability, Divorce, Disagreement. How’s your partnership going to work through and survive these events? A lot of different pieces can come into building a great partnership agreement and these are just some of them, but I wanted you to think about these. I wanted you to understand these and see how they all fit together and where you might learn more.
How are you building your partnership agreements? Have you thought of partnerships as being simple? Are you surprised by the complexity of partnerships? Join us 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. Freeimages.com/Photographer Odan Jaeger.
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 email R. Shawn McBride or call (214) 418-0258.
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