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Rose Law Firm of Napa Valley, Inc.

Seasoned Legal Judgment For The South Metro Area

How can you protect yourself in a business partnership?

| Sep 23, 2020 | Uncategorized |

Going into business with another person is a serious commitment. You will have a direct influence on one another’s schedules, livelihood and success for the foreseeable future. You have to be able to trust each other and have similar goals for the company for things to work smoothly.

Life with many relationships, business partnerships often start out positive but can deteriorate over time if not properly cared for. Before you formally start a business with another person, it is in your best interest to take steps to protect yourself, your ideas and your investment from the consequences of a fallout with your potential business partner.

You need to ask yourselves some tough questions

In order to optimize your relationship and adequately protect yourself, you need to have a firm understanding of your expectations and values and those of your potential business partner. Discussing certain critical topics now can help you avoid conflict or losses in the future.

  • Do you expect that your business partner will put in as much unpaid overtime as is necessary to get the company off the ground?
  • What jobs will each of you perform? How will that change as the company grows?
  • What investments are necessary at each stage, and who will make them?
  • What happens to your assets if the company fails?
  • Under what circumstances would you potentially sell your business to someone else or merge it with another company?
  • What would you expect to get bought out of your share of the business?

You can discuss any differences in your answers or wishes now and create solutions that will work for you as partners and the business if troubles do arrive.

A partnership contract and dissolution plan will protect you both

Having these discussions early on can save you from discovering incompatible business philosophies later, but enshrining expectations and rules in a contract will help you if things go awry. Putting all of your expectations, rules and obligations in writing now can save you from hardship and conflict in the future. Create a partnership contract, and consider expanding your expectations into job contracts and your business plan.

You also need to think about a dissolution plan for the company. Having steps in place to end your partnership, either by dissolving the business or by one partner buying out the other, is also usually a good idea of going into a partnership. With the right protections, your risks will be minimized as you start a new business with your partner.