Avoid Creating an Accidental Partnership – Plan Ahead

Avoid Creating an Accidental Partnership by Planning Ahead. You and a friend start discussing a new business idea, you both do some research, work on a business plan, and maybe even convince a few clients to hire you.  But what happens when either: (a) the new business is successful, but one partner doesn’t think that the other should be a co-owner or doesn’t think that the other should get half; or (b) the business fails and no one is sure who is liable for the debts and liabilities of the company?  In either case, you are equal partners in a general partnership, which means that: (1) you have equal voting rights; (2) you are both entitled to 50% of the income and deductions from the company; and (3) you are both personally liable for the debts and liabilities of the company.

In this accidental partnership, even if one partner does more work than the other, each partner can claim 50% of the business income.  Worst of all, every partner in the general partnership will be liable for the debts and liabilities of the partnership.  Further, if each partner has equal voting rights, major decisions (like adding a new partner or when to sell the business) could end up in deadlock.

While you can use a written partnership agreement to avoid some of these problems, in most cases it makes sense to form a LLC and execute an Operating Agreement.  By doing so, you can clearly establish the voting and economic rights of the parties and you can benefit from the limited liability these businesses entities provide.

The attorneys at Skufca Law are experienced business attorneys who are available to talk about forming your business to make sure you don’t make mistakes in the process. A small investment up front can help you avoid huge legal bills and headaches down the road.  For more information, please contact the attorneys at Skufca Law at 704-376-3030.

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