The large majority of successful businesses are based on partners exchanging and testing ideas, establishing shared vision and goals, as well as their joint investment of funds and know-how. The company can run smoothly for many years on the basis of these premises. On the other hand, people do differ.
During the course of the life of a business venture, partners may have divergent ideas on its future and disagree on a course of action. Business partnerships may thus end up with the parting of the former partners. The dissolution of business entities may be coupled with acrimonious litigation and disputes. That is why having an ally when forming a business partnership in San Diego is all too important.
What makes a good business partnership?
Much like any relationship, building an honest and successful one with a business partner requires dedication and work. Do your due diligence to find the type of business partnership that will work for you to reap all the benefits of such a business model. For it to be fruitful and lasting, you must follow a set of guidelines from the very beginning.
Set the terms and conditions
Regardless of how close the prospective partners are and the level of trust among them, it is always advisable to set the terms of any partnership in a written agreement that will deal with all potential issues. These include profit distribution, investment decisions, leverage, business planning, and decision-making during the course of the partnership.
Have written provisions
It is advisable to have written provisions for the eventual winding up of the partnership envisaged and prescribed well in advance. These types of provisions will help remove any source of friction and dispute while ensuring that partners are aware of the possibility of leaving the partnership and compensation for such decisions.
Define the duties and responsibilities
It is important to clearly define the duties of eventual work and the amounts of compensation. Have a defined list of responsibilities, rights, and obligations of the business partners. In that sense, it is imperative to define the partners’ authority and limits regarding business decisions and finance. Additionally, assignment of certain aspects of the functioning of the business to one of the partners with responsibilities for organizing the production, marketing, web design and presentation, finances, or bookkeeping is essential.
Contributions of the partners
The contributions of the partners must be clearly defined, as well as their legal status. The timing for the repayment of these cash contributions needs to be clearly defined, whether it’s during the lifetime of the business, or upon successful sale of the business.
Partners should agree in advance on the policy on investment and reinvestment decisions related to business growth and parameters of business success these decisions should be based on.
The issue of joint and separate liabilities must always be taken seriously. The actions of any of the partners impact the whole joint enterprise. They affect all the other partners and create liabilities for all of them. In that sense, it is always worth considering what legal structure is best suited to protect the partners from such eventualities. LLCs or corporations offer better protection and are more suited to the purpose than partnership agreements or other similar forms of joint venture agreements because they limit the partner’s liability to the amount of invested capital.
Are you forming a business partnership in San Diego? Call us today!
Setting up a business partnership can be quite a challenge. However, with the right team by your side, you can overcome any obstacles that may arise. At David York’s Tax Service, we can help you make the most of your business partnership in San Diego County and the region. We boast a team of highly qualified and dedicated experts to guide you through the process. Schedule your appointment today!