5 Key Things to Consider Before Starting a Partnership Business in New York
Starting a business as a partnership can be an attractive proposition3 min read
Starting a business as a partnership can be an attractive proposition. It may bring together people with different skills, allow for pooled resources, and create a collaborative work environment. However, if not well-structured, a partnership can become a source of complex legal and financial problems. As such, it is essential to consider and address various key elements before entering into a partnership agreement. With the help of business lawyers in New York, entities can understand and comply with the applicable regulations and be prepared for both expected and unexpected challenges.
For companies and entrepreneurs in New York, the top five considerations for a successful business partnership include regulating expectations and responsibilities, assigning ownership rights, setting a plan for resolution of disputes, setting out the financial terms of the partnership, and understanding the implications of changing or dissolving the agreement. By addressing these five points, entities can ensure the success and longevity of the partnership.
1. Regulating Expectations and Responsibilities
Partners should make sure to have a clear understanding of each other’s expectations, roles, and responsibilities. This includes both the expectations of what each partner will do internally and externally, as well as whether or not they will benefit from offices and resources faces. The most effective way of regulating these expectations is by developing a Partnership Agreement, which is a contract between two or more people or entities that outlines the object, purpose, obligations, regulation, and resolution of any disputes. It is important for parties to include in this agreement the structure of the management, ownership rights, compensation/distribution of profits, authority to incur debts, and the responsibility of costs.
2. Assigning Ownership Rights
Another key consideration for partnership businesses is clearly assigning the ownership rights. To do this, all affected parties should be informed of their legal status as partners, shareholders, non-voting shareholders, or financial partners. This will entail an understanding of the different classes of shares, as in venture capital partnerships; the contributions of capital (if any); the voting rights; the right to access company information; and the distribution of assets and income. It is also important for all partners to agree on the division of profits, losses, and decision-making powers.
3. Setting a Plan for Resolution of Disputes
As disagreements arise throughout the course of the partnership, settlement of disputes should normally be addressed by relying on internal processes and procedures. This includes setting out language to address what happens in the event of partner death, departure, or disagreement. Parties should also consider arbitration and mediation in the event of financial or legal disputes, and underlying contracts should be in clearly understood by all partners.
4. Setting Out Financial Terms
Part of the lawyers’ responsibility is to ensure that the financial terms of the partnership are clearly defined and agreed upon by all partners. This includes the payment for assets and liabilities, exchange of contributions in cash or kind, and details of the financing activity. Additionally, partners should consider the payment and taxation of the profits received by the joint venture.
5. Understanding Implications of Changing or Dissolving the Agreement
Finally, as the partnership can change or may need to dissolve, it is important to establish processes that are compliant with local and federal regulations. It is crucial that the agreement set out a dissolution resolution procedure or alterable process to change the company’s structure without the need to start new contracts. Company owners should also ensure they are compliant with laws throughout the duration of the partnership.
The creation of a successful and stable partnership is essential for any business. By engaging the help of business lawyers in New York, entities can make sure that all parties’ expectations, responsibilities, ownership rights, financial terms, and dissolution process are addressed correctly to maintain a good balance between risk and reward. At UpCounsel, experienced lawyers can connect business owners with excellent legal counsel to ensure that companies comply with regulations and protect their interests throughout the partnership.