A partnership is a "business marriage." Successful partnerships have a number of elements in common. The partners trust each other. They are able to communicate effectively with one another and what is expected of them. They have a business plan. They understand the cost of starting up and running the business. They have a market that they can readily identify and target. They understand that each partner may take different roles and effort will not always be equal. They have clarity of purpose and have well-managed expectations.
Unfortunately, 80 percent of New York Partnerships fail. Partnerships often run into problems when there is a lack of trust between the partners. Partners may not be doing their jobs. There may be a problem with the home life of one of the partners which can cause stress. When entering a partnership, everyone has high hopes and not everyone can handle the up and downs of entrepreneurship. In my opinion, the biggest problem that Partnerships face is a lack of planning when forming a Partnership. That's why it's vital to meet with an attorney when forming a Partnership.
What is a Partnership?
A partnership has five elements:
- There must be a contract;
- Between two or more persons;
- Who agree to carry on a business;
- With the object of sharing profits; and
- The business must be carried on by all or any of them acting at all
The formation of a business entity is the first step toward determining how the business will be managed and controlled, as well as the relationship between it and its owners and investors.
- Professional Corporation (PC)
- Professional Limited Liability Company (PLLC)
- General Partnership (GP)
- Limited Liability Partnership (LLP)
- Limited Partnership (LP)
- Limited Liability Corporation (LLC)
- Joint Venture
Our office will guide you on the proper form and will draft an agreement for your Partnership.
Partnership Agreement in Five Steps
- Do your due diligence on your potential partner(s)
- Find out the intentions of each partner
- Deal with any potential sources of disagreement
- Draft the Partnership Agreement
- Sign the Partnership Agreement.
After meeting with your attorney, each partner will be presented with a questionnaire. Issues to watch:
- Where is the start-up capital coming from
- Defining the business model
- The day to day roles of each partner
- Expectations of involvement in the day to day operations
- Percentage of ownership
- Dilution of shares
- Exit strategy
What Elements should be in a Partnership Agreement?
- The duties and responsibilities of each partner must be defined.
- Defining where Startup Capital comes from, including fundraising considerations
- Mechanisms for decision making
- Allocations of profits and losses
- Notice to Cure and Alternative Dispute Resolutions
- What happens if a partner dies or withdraws (buy-sell).
- Intellectual property ownership
The Law Office of Frederic R. Abramson has over 22 years of experience with setting up businesses. Feel free to call us 212-233-0666 or set up an immediate virtual consultation.