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The Legal Matters That Affect Business Partnerships

Business partners share capital, resources, skills, and time. Many successful businesses have started because of partnerships. Facebook is a popular company born out of the skills and investments of Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes. Though they have different levels of contributions to the platform, only Zuckerberg remains to be Facebook’s popular figure right now.

These partnerships eventually fizzled out either because of disagreements in money or policies or values. There have been many popular disagreements in the past among these business partners. They hogged headlines in the past. Is there a way to prevent these from happening? If you are in the middle of entering into a business partnership, could these things have been avoided?

What Happens When There’s a Legal Matter Between You?

The contract between and among partners will guide each one on how to deal with legal matters. First, there should be talks and negotiations when there are problems. Second, the contract will stipulate the legal actions that have to be followed. This is when you need to call a lawyer who will then use a process service company to serve the legal papers and documents to the other party. Usually, partners will agree not to have to file a lawsuit against each other to protect the business. Even partners who want to get out of the partnership will care about the prospects and value of the business.

Operating Agreement

Any partnership should be under a written and signed agreement. Even marriages have existing contracts, so why shouldn’t a business partnership be without one? The biggest mistake you can make is not having an agreement about the scope, limitations, and requirements of the partnership. When there is no agreement, there are no guidelines on how to go about the partnership, including its dissolution and the partition of the business’ assets and liabilities.

Shared Liability

Who makes the major decisions about personnel? What about investments and capital? Who takes care of the taxes? Partnerships are not just about putting money into your business. It’s about the time and energy spent on operating and managing the business. It’s about major decisions that can either lead to the growth or failure of the company. When there is no clear delineation about the sharing of responsibilities between partners, it’s easy to play the blame game. After all, you can exonerate yourself from business failures if you can simply point to the other partner as the culprit.

Plan for the End

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It sounds ominous to plan for the end of the business partnership when you’re just starting, but that’s actually the right and practical thing to do. In the beginning, you have a shared vision for the business. Everything is crystal clear about the goals of the company. However, plans will change if you or your business partner gets married. Maybe one of you will want to retire early and sell the shares of the company. What happens then? How about if the other partner wants to expand the company and invite more investors? Or, what will happen if you suddenly don’t want to share in growing the company anymore?

There are other things, too, such as the death of a partner. Will the wife or children take over? Or, will the whole operation of the company fall on the other partner’s shoulders? It’s important to discuss these things because these will affect the business and its future.

Non-compete Agreement

It’s easy to forget about the importance of a non-compete agreement at the start of the partnership when the relationship is all flowery. However, as differences begin to surface, one partner may feel that it is high time to start a new business. A non-compete agreement will make sure the partner will not start a venture similar to that of the existing business model.

Some states see this as too restraining on trade. However, special rules can govern the establishment by a former partner of the same business type. This agreement will protect your business interests, as well as prevent costly litigation and intellectual property rights issues.

It is nice to have a business partner because you will feel more confident with your decisions. There’s someone who cares about the business as much as you do. However, you also have to stress the importance of contracts and agreements because these partnerships can be detrimental to your growth as an entrepreneur once you and your partner don’t see eye to eye anymore. There should be stipulations about how such partnerships may end and how to protect the business from the liability of the dissolution of the partnership.

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