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Partnerships… For better or for worse…

Posted by attorney Richard Sierra

During the course of my practice, I have represented clients who filed suit against former partners for breach of contract and other claims. Among the most common claims include when one of the partners embezzled money from the company or one partner kicked out the other from the business and changed the locks to the business. Partnerships between friends and relatives are a high risk proposition unless done correctly. I have seen life long friendships destroyed over businesses and family relationships strained and severed after a business fails or if one partner felt that his/her trust was violated by the other partner. This does not mean however, that all partnerships are not successful. I have seen very successful partnerships thrive. If you are contemplating entering into a partnership, below are some suggestions to keep in mind:

  • Have a partnership agreement drafted by an attorney.

  • Decide how the business will be funded.

  • What type of entity will you form (Corporation, Limited Liability Company, etc.)

  • Have well defined areas of responsibility.

  • All have equal access to the bank records of the company.

  • Have clear procedure on authorization of payments from the checking account and use of corporate credit cards.

  • Use an accounting firm to keep the books.

  • Keep minutes of meetings and adhere to corporate formalities (i.e. annual meetings of directors and shareholders).

  • Have a written agreement on how each of the partners will be compensated.

  • Have a clear method for resolving disputes.

  • Have an exit plan if one of the partners leaves the partnership.

Business partnership just like most relationships will face many challenges; however, with proper planning and a well-drafted shareholders or operating agreement, many of these issues can be avoided. In future blogs, I’ll address some of these items individually. Good Luck with your business!

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