By: Katelyn J. Dougherty, Esq.

Entering into a business partnership can be an exciting venture, filled with new opportunities and collaborations. However, it’s not just a handshake agreement. It involves careful planning, understanding legal implications, and preparing for potential challenges. This blog post aims to explore the various factors of setting up a business partnership.

Understanding Business Partnerships

A business partnership is a legal relationship, governed by Florida Statutes Section 620.8105, formed by two or more individuals to operate a business as co-owners. Partnerships are governed by state laws and can have various forms, such as general partnerships, limited partnerships, and limited liability partnerships, each with its unique features and legal implications.

Partnerships fall under the category of business entity types, such as limited liability companies and corporations, although they are distinct from both limited liability companies and corporations.

The Basics of Forming a Partnership

Forming a partnership is a significant step in the business world, and it’s important to approach it with careful planning and consideration. Here’s an expanded view of the three key aspects you mentioned:

1. Find the Right Partner: When choosing the right partner, it’s important to select someone whose skills, values, and business visions align with your own. The following are some considerations to make:

1. 1. Complementary Skills and Expertise: Look for a partner whose skills complement yours. If you’re strong in product development, a partner with marketing or financial expertise might be ideal.
   2. Shared Vision and Goals: Ensure that your business goals and visions are aligned. This alignment is crucial for long-term success and decision-making.
   3. Trust and Reliability: Choose someone you can trust and who has a track record of reliability. Your partner should be someone you can depend on in challenging times.
   4. Communication Style: Evaluate how you and your potential partner communicate. Effective and open communication is vital for resolving conflicts and making decisions.
   5. Financial Stability: Consider the financial background of your potential partner. Financial stability or the ability to bring in financial resources can be advantageous.
   6. Do Research: Conduct thorough background checks, or whatever other research is necessary to ensure there are no hidden liabilities or past business failures that could impact your partnership.

And remember, just because someone is your friend or family member doesn’t mean they will make the ideal business partner.

2. Get Partnership Terms in Writing: Drafting a Partnership Agreement is a crucial step, as this document outlines roles, responsibilities, profit sharing, among other things, and it is recommended to have it drafted or reviewed by a legal professional. The following are some considerations to make:

1. 1. Roles and Responsibilities: Clearly define each partner’s role and responsibilities to avoid conflicts and overlaps in the future.
   2. Profit Sharing and Financial Contributions: Decide how profits and losses will be shared and document the initial financial contributions of each partner.
   3. Dispute Resolution: Include a method for resolving disputes, whether through mediation, arbitration, or another process.
   4. Decision-Making: Establish how decisions will be made, whether by majority, consensus, or certain decisions reserved for specific partners.
   5. Exit Strategy: Outline the process for a partner exiting the business. This includes buyout clauses, valuation methods, and notice periods.
   6. Legal Compliance: Ensure that the agreement complies with local laws and regulations. This might involve consulting with a legal professional.

3. Register with the State: Registering the partnership with the Department of State is a legal requirement in many states and involves formally establishing your business entity with the government. The following are some considerations to make:

1. 1. Partnership Type: Decide on the type of partnership (general, limited, etc.) and understand the implications of each type.
   2. Legal Requirements: Research the legal requirements for forming a partnership in your state, including registration processes and fees.
   3. Business Name: Decide on a business name and check its availability. You may need to register a fictitious business name (or “doing business as”).
   4. Licenses and Permits: Identify the necessary licenses and permits required for your business type and obtain them.

General Considerations

Partnerships encompass intricacies and potential challenges. Here are some principal matters to consider when establishing your partnership and preparing an agreement.

1. Liability Issues: In general partnerships, each partner is personally liable for the debts and obligations of the business. Understanding and planning for these liabilities is crucial. Learn more about Liability Issues in General Partnerships HERE.
2. Financial Contributions: Disagreements over financial investments can arise. Your partnership agreement should clearly state each partner’s contribution and ownership stake, and what happens in a dispute of finances. Learn more about Financial Contributions and Ownership in Partnership Agreements HERE.
3. Decision-Making: Establish how decisions will be made in the partnership. Will all partners have an equal say, or will different partners have different levels of authority? Learn more about how decisions can be made HERE.
4. Conflict Resolution: Implement strategies for resolving disputes. Consider clauses for mediation or arbitration in your partnership agreement. Learn more about Conflict Resolution in Partnership Agreements HERE.
5. Exit Strategy: Plan for the future with a buy-sell agreement, which outlines what happens if a partner wants to leave, retires, or passes away. Learn more about Exit Strategies and Buy-Sell Agreements in Partnership Agreements HERE.

Legal and Tax Considerations

When forming a partnership, it is fundamental to pay close attention to legal and tax considerations to ensure the business operates smoothly and within the boundaries of the law.

1. Legal Compliance: Partnerships must comply with a multitude of laws and regulations at the local, state, and federal levels. These include business registration, permits, licenses, and industry-specific regulations. Failing to comply with these laws can result in fines, legal consequences, and disruptions to the business. Invest in a good business law attorney to help with your business compliance navigation.
2. Tax Responsibilities: Gain a comprehensive understanding of a partnership’s tax responsibilities. Typically, partnerships themselves are not subject to taxation; instead, profits and losses are distributed to the individual partners. Additional tax considerations include Self-Employment Taxes, Estimated Tax Payments, and opportunities for Tax Deductions and Credits. It is advisable to seek guidance from a certified public accountant (CPA) for all tax-related concerns to safeguard your business’s financial well-being.

Learn more about Legal and Tax Considerations in Partnership Agreements HERE.

Conclusion

Setting up a business partnership requires more than just a shared vision; it demands careful planning, legal considerations, and proactive management of potential challenges. By addressing these intricacies head-on and with the guidance of tax and legal professionals, you can lay a strong foundation for a successful and enduring business partnership.

And remember, this blog provides a high-level overview of setting up a business partnership. For a deeper dive into each of these areas, contact a business attorney to get tailored advice for your specific circumstances.

____________________________________________________________

Don’t have a business attorney? Get in touch with our team by emailing Info@harbourbusinesslaw.com.

____________________________________________________________

This Blog was written by Founding Attorney, Katelyn Dougherty.

DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. This blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Harbour Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.