Creating a business partnership can be a critical step in the success of your company. An additional partner can begin in insights or opinions that you may never have otherwise considered. While a business partner can be invaluable, the formation process can be complicated.
The partnership formation process is a complicated matter, and a mistake or misstep during this process can become a major source of regret if you are not careful. Here are five common mistakes that you can look to avoid during your partnership formation:
Not making a written agreement
Two partners agreeing to work together is not sufficient in protecting themselves throughout their partnership. It can be common for close friends, siblings, or other family members to form a partnership and not make any written agreement. While this may seem like a polite action, it can actually jeopardize both parties.
Not including an exit to your agreement
If you wish to break your partnership, it can be extremely difficult or costly if you do not have a clause in your partnership contract allowing it. Creating terms for a partner to walk away or sell their share of the business can benefit the remaining partner and the company as a whole.
Not considering a limited partnership
If one partner cannot offer as much hands-on contribution as the other or only wishes to act as a sponsor for the business, it may be wise to consider creating a limited partnership. This limited position can restrict how much control over the business, which can protect the company in the long run.
Choosing a bad partner
A sibling who has helped you form your business through financial contributions or physical aid may not be the best choice for a business partner. Allowing you to use their garage is not the same level of qualification as a business degree. There are other ways to thank a loved one who helped your business without making them a partner.
Undergoing a formation without an attorney
Owning a business does not instantly grant someone the years of business law experience that a business law attorney has. While forming a partnership, your business law attorney can help you oversee your formation to include clauses to benefit you and omit ones that do not. If you are forming a partnership, make sure you have a business law attorney helping you.