How to Form a Business Partnership – Part II
Forming a business partner relationship with a stranger or even a family member can be a nerve-wracking task, but not if you know what you’re doing. When forming a business partnership with someone, it is important to have an attorney present for the signing of all legal documents and contracts. Forming a business with complete strangers can also be difficult because there is no way to know who they are or what their intentions really are. You do not want your business to be a victim of greed or ignorance; you must be absolutely sure before entering into any type of business transaction with anyone.
Forming a new business partnership should begin with careful research on the background and reputation of each potential new business partner. You may be able to get information about them from the Better Business Bureau or other similar organizations. If you can, talk to people that may know them personally. If you cannot get any sort of reliable information, you will have to base your decision on trust. Forming a new business partnership without any sort of written agreement between everyone involved is risky, so the least you can do is have an attorney present during the formation process. This will provide you with the peace of mind that comes with knowing that no one is getting left out in your new venture.
The next step in forming a business partnership with anyone is to choose the personal partnership that you would like to continue as your business entity. You need to make sure that the personal partner you choose has a level of personal liability insurance to cover any potential lawsuits that could arise. The personal liability clause should be in writing, so you can add your partners’ names as individuals on the policy if necessary. Some partnerships are complex enough that there is no need for this type of insurance.
Next, you and your partners should decide on what type of business structure you prefer. Some partnerships are limited or general partnerships; some are sole proprietorships and others are partnership franchises. If you are working with a partner who already owns a business, they may prefer the general partnership rather than a limited partnership. Limited partnerships can allow you to reap the benefits of the profits from the business while sharing in the losses from it, while a sole proprietorship limits your partners’ liability from any wrongdoing. These auctions, via sites such as Boat Parts are also available online.
After deciding on the type of partnership you would like to have, you should consider how long-term you plan to keep your business partnership. Many partnerships share profits and losses over a longer period of time, while others share profits only for a short period. Long-term partnerships allow long-term growth opportunities, whereas short-term partnerships help limit your partners’ risk. Forming a long-term business partnership requires that you obtain both an insurance policy to protect your investment as well as a power of attorney to allow your partner to make key business decisions. This protects you as well, because if something happens to your partner, you will still be able to continue using the service and paying your outstanding debts.
Finally, you should think about who will be your partners. Will you be forming a limited liability partnership, a corporation, or will you be working solely as your own firm? Forming a partnership requires that partners each own shares in the partnership’s equity and liability, while a corporation requires that all partners each own a share in the ownership. Forming a corporation allows your personal liability to be limited to the amount of your personally liable credit, while a partnership allows you and your partners to be individually liable for your business structure’s liability. Forming a personal liability partnership is usually the best choice if you expect to keep your business separate from your personal finances for the long-term.