Taking on a business partner can be an exciting step in your entrepreneurial journey. A new partner can also inject a restorative dose of vitality into a stagnant company.
But before you shake hands and dive in, it is crucial to understand the legal landscape. Leaving certain matters unaddressed could impact the success and longevity of your partnership.
Your business structure
You may want or need to change your business structure after taking on a partner to ensure that you protect your interests. General partnerships offer simplicity, but as the “general member” you may hold unlimited liability for business debts. Limited liability partnerships provide personal asset protection to all members.
Your partnership agreement
Since this document will serve as the roadmap for your partnership, you need to make sure that it outlines obligations, rights and protections.
Examples of topics to address include the following:
- Each partner’s expected contributions (financial investment, intellectual property, skills, etc.)
- Each partner’s roles, responsibilities, operational duties and decision-making authority
- How company profits and losses are distributed among partners
- Options for resolving partner disputes and disagreements (mediation, arbitration, etc.)
- Exit strategies and procedures for buying out a departing partner
A well-drafted agreement goes a long way in preventing conflicts while protecting the interests of all.
Possible tax implications
Most partnerships are pass-through entities, meaning that income and losses flow through to individual tax returns. Sometimes, this can be advantageous. However, it could also nudge you into a higher tax bracket — possibly increasing your tax burdens.
Remember, time invested upfront to prevent potentially costly partnership disputes can spare you significant headaches later. Our Florida law firm offers free consultations to those in need of legal guidance in business matters.