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Avoiding common partnership formation mistakes

On Behalf of | Jan 10, 2023 | Business Law |

Launching a business with another party means establishing a partnership agreement to protect both of your interests. Sometimes, people overlook the details in their excitement for the new venture, leading to some costly mistakes.

There are a few things you need to consider to protect yourself if you are forming a partnership.

Do not skip the paperwork

Make sure that you prioritize the partnership agreement as you launch your business. A partnership agreement protects both you and your partner, defines the division of profits and expenses, establishes options for conflict resolution and details how you will make decisions.

Choose the right type of partnership

When you establish your business partnership, you need to select the right type. You will have a choice between a general partnership or a limited partnership. A limited partnership restricts the liability of each partner in the business. A general partnership leaves both partners equally and fully liable for the financial losses of the business.

Allow for a partner’s exit

When you write a partnership agreement, consider the potential for one partner wishing to leave. Establish an avenue for partnership exit, whether it is a buy-out, share sale or other solution. Contractual definitions protect both parties.

Protect your partnership with clearly defined contractual agreements. When you have a partnership agreement that covers every detail, it protects both your interests, the business and everyone’s financial investments. Consider the type of partnership you wish to form and the avenues available for each partner’s exit when you put everything into print.