Starting a new business is an exciting time, especially if you are sharing the new venture with a friend or family member. The group of you can work together to see your dreams and ambitions come to fruition. There are lots of things you will need to work on and discuss while getting your business started, including how the business will be structured. Partnerships, including limited partnerships, limited liability partnerships, and general partnerships, are all good options for your business, depending on your goals. Every partnership will need to have a Partnership Agreement.
The Partnership Agreement is the document wherein you and your partners will set out the rules, rights, and responsibilities for your partnership. The aim of the document is to ensure that all partners are clear how the business will be run and what everyone is responsible for doing on a large scale. One important element of the partnership agreement is to set out which partner owns what percentage of the business. Although the word “partner” may conjure images of equal shares, this is not always the case. Partners may choose to split the business in any variety of ways, depending on the amount of capital each partner contributed at the beginning or maybe the day-to-day effort and time just one of the partners spends on the business. Whatever the reason, the partnership agreement should clearly detail how much of the business each of the partner owns.
The partnership agreement should also set out the voting rights of each partner and whether those voting rights are directly tied to the percentage of ownership of the business. Naturally, every day type decisions can be informally decided, but major decisions should be done according to the voting rights of each partner. The partnership agreement should also detail what is to be done in the event of a tie.
The partnership agreement also needs to provide details on what to do in the event one or even all of the partners want to end the partnership. The partnership agreement can dictate if the business is to be sold, if the partners are required to first be given the chance to buy out the leaving partner, and if the business is sold, how any profits are to be distributed.
Business planning has many considerations. We have extensive experience in helping our clients structure their business and make the right decisions for their future.