It's very easy and if you're in business with another person, you may, under the law, be acting as partners without realizing it. A partnership is one of many legal entities a business can operate under. It's a legal entity that could be created simply by the actions of the parties without those involved intending it to be created and without a written agreement or even a handshake.
Many business partnerships start with that hand shake, along with verbal agreements, plans, dreams, hopes and a lot of hard work. Because partnerships can be formed so informally they are ripe for disagreements and potentially dishonesty. One party may simply do his or her thing without the approval of the other and use money and resources for non-partnership purposes.
To lessen the risk of misunderstandings, misdeeds and mistakes your partnership should be formalized with a written agreement. Unlike an oral agreement a good, written partnership agreement leaves little doubt as to what it means or how it applies to the parties. It can spell out who is responsible for what, who is entitled to what, how disputes are managed and resolved and how the partnership can be dissolved if the differences between the parties are too great or one party simply is no longer interested in the business.
Normally partnerships have a very simple organization. The partners manage the business and if there are more than two involved, the majority could make the decisions. That gets more complicated if one person owns a greater share of the partnership than others.
Unlike corporations there are no boards of directors. Partnerships, unless there's an agreement to do so, do not need formal meetings like corporations do. Generally the management and administrative operations of a partnership are more simple than a corporation, which can be a competitive advantage.
There are several varieties of partnerships so business owners often find one of these is a good fit for them and their business. General partnerships:
● Are the simplest of all partnerships.
● All partners share in its management and in its profits.
● Matters concerning the ordinary operations of the partnership can be decided by a majority of the partners.
● If one or more partners can own a greater share of the entity than others partners, a vote could count based on the percentage of ownership.
● All partners are responsible for the liabilities of a general partnership and for the actions and agreements of each other.
The limited partnership:
● It's owned by two classes of partners: general partners manage the business and are personally liable for its debts.
● Limited partners contribute capital and share the profits but generally are not involved in managing the business.
● Limited partners don't incur liability for partnership debts beyond their capital contributions and have liability protection the shareholders of a corporation.
The limited liability partnership:
● It's made up of licensed professionals such as attorneys, accountants and architects.
● The partners have personal liability protection for the acts of other partners but each partner remains liable for his/her own actions.
Whatever type of partnership is right for you and your business you should take steps to avoid problems that could lead to lawsuits and legal claims. First of all partner with the right people. Perform your due diligence, make sure you can trust your partners and that a potential partner is a good fit for the business and the other partners. A written partnership agreement is also critical to making sure disagreements are properly handled, each partner knows what's expected and what should happen when things aren't going well for the business.
We help our clients with business litigation in general and partnership disputes in particular. If you have questions about partnership problems, how they can be avoided, resolved and if necessary, litigated, contact our office today so we can talk about your situation and how your rights and interests can be protected.