When it comes to starting a business, choosing an entity type is one of the first (and most important) decisions you must make. Will your business be a sole proprietorship, or a limited liability company? What about a corporation? These are all popular choices for new businesses. Another popular choice is a partnership. Many of the largest companies in the world – including Google and Microsoft – began as partnerships.
Partnership – What Is It?
When many people think “partnership,” they picture two people engaged in a business endeavor. In reality, a partnership can be any combination of two or more people or entities, and even a mix of both people and entities.
Although you do not need a written partnership agreement to operate a partnership in California, it is a good idea to have one. Without a formal partnership agreement in place, you open the door to serious and potentially costly disputes down the road.
Disagreements among partners can seriously threaten the viability of the partnership, and can even cause the business to close its doors. An experienced California business lawyer can help you draft a partnership agreement that anticipates possible areas of conflict and minimizes the risk of disputes both in the short- and long-term.
What to Include in a Partnership Agreement
Before you begin operating your business, you should have a formal partnership agreement in place. At a minimum, this agreement should clearly spell out all partners’ expectations, responsibilities, and intentions. The agreement should also address how disagreements are handled.
Additionally, your partnership agreement may include the following:
- A provision that clearly states how the partners share profits and losses. Although many partnerships allocate profits and losses equally among the partners, you may choose to assign different percentages.
- How much the partners are contributing to the business. Your agreement should explicitly state how much of an investment each partner is making to get the business off the ground. Although this number may seem clear to everyone now, human memory has a way of warping facts; it is better to make sure there are no questions about how much money each partner contributed.
- Clear rules about how decisions will be made. This can range from how you hire employees to how and when profits are paid out.
- The rights and responsibilities of each partner. Your agreement should be specific about each partner’s expectations and role in the business.
- A provision that specifies how the partnership can add new partners.
- Provisions that spell out how disputes will be handled.
- A section on what happens if the partnership needs to be dissolved.
Are You Ready to Get Started?
If you are considering a partnership for your business, it is important to get started on the right foot. Protect your time and your investment by working with experienced California business lawyers. Call Yee Law Group Inc., PC today at (916) 599-7297 to speak to a knowledgeable business formation lawyer about the next steps for your business.