How Do You Protect Yourself in a Business Partnership?
An old saying claims that two heads are better than one. In the context of business partnerships, this is often true. Partnering with another individual can help you divide business responsibilities, increase capital, attract investors, and grow your company. Partners can bring fresh ideas and a wealth of knowledge and experience to the table. There are many advantages to going into business with other people. However, there are also challenges and risks associated with business partnerships.
If you are interested in forming a general partnership, limited partnership (LP), or limited liability partnership (LLP), protecting yourself is crucial – even if you are entering into a business with someone you trust.
Partnership Agreements in Illinois
A partnership agreement is a legally binding agreement that explains how two or more people share a business. Partnership agreements should explain each partner’s rights and responsibilities, how ownership of the company is divided among partners, and how decisions about the company will be made. It is not enough to discuss these issues with partners. You need a formal written partnership agreement that has been reviewed by an attorney.
Do not make the mistake of assuming that you do not need a partnership agreement because you are going into business with a trusted friend or family member. Partnership agreements are necessary for defining each partner’s role in the company, preventing disputes, and clearly stating expectations.
Partnership agreements usually include:
- The purpose and start date of the partnership
- Each partner’s ownership interest and compensation
- How partners share liability for business debts
- Each partner’s name and role in the company
- Information about business operations and decision-making
- How and when new partners will be added to the business
- How any disputes will be resolved
- Information about business succession and dissolution
Protecting Yourself With a Separation Clause
Unfortunately, business partnerships do not always work out as intended. People change their minds or realize that the partnership is not what they wanted. Sometimes, a partner gets sick and passes away. Because no one can predict the future, it is important for anyone entering into a partnership to have an exit strategy. Make sure your partnership agreement has a separation clause that explains what happens if a partner leaves the company. How much compensation does the partner receive? How is the partner’s name removed from contracts such as leases and loans? How is the exiting partner protected from lawsuits?
Contact a Naperville Business Law Attorney
If you are forming a partnership, you need to protect yourself legally and financially. Contact the Gierach Law Firm for help forming partnership agreements, separation agreements, succession plans, and more. Call our talented and experienced Naperville business lawyers at 630-756-1160. Set up a confidential consultation today.
Please note: These blogs have been created over a period of time and laws and information can change. For the most current information on a topic you are interested in please seek proper legal counsel.