Partnering with another business in Los Angeles requires a lot of thought and planning. To ensure the partnership is the best fit for all parties involved, it’s important to create a well crafted and legally binding agreement. As most partnerships involve a high level of trust, there are a significant number of considerations that need to be accounted for when drafting a partnership agreement.

From structure to capital contributions, and from liability allocation to dissolution, this article will cover the top 5 things to consider when forming a Los Angeles-based partnership. With this knowledge, you can optimize your agreement and be confident that all parties can benefit from the relationship.

1. Structure

The first step in creating a partnership agreement is by determining the form of partnership you wish to pursue. There are several types available; the most common are general partnerships and limited partnerships, but there are also joint ventures and family partnerships.

General partnerships are used when two or more partners wish to bear mutual and administrative responsibility for their business and its liabilities. In a general partnership, partners are exposed to unlimited personal liability. This essentially means that, in legal disputes, each partner is responsible for the actions and debts of their entire business.

By contrast, limited partnerships provide limited liability to one or more of its partners and all profits and losses are subject to individual taxation. For this reason, they are typically used by investors late in the startup process wishing to reap rewards without taking on any legal responsibility.

For Los Angeles businesses, it’s important to account for local laws and determine which type of structure meets your specific needs. If you’re unsure of which one to choose, then researching the differences and consulting with a qualified attorney may help.

2. Capital Contributions

Capital contributions, also known as an ‘in-kind contribution’, are the tangible or intangible assets that are brought to the table by partners in a business. This includes things like money, physical property, services, vehicles, furniture, and intellectual property.

In Los Angeles, it is important to note that personal capital is not subject to the same taxation as other business assets. Of course, each individual partner’s contribution should be considered when specifying how profits and losses will be distributed between the partners.

3. Authority & Responsibility

Specifying everyone’s roles and responsibilities in the agreement are key for ensuring all partners are on the same page. This allows those in charge of different responsibilities to focus on areas where they have the most expertise, like in the technical or management side of the business.

The distribution of each partner's authority is important to establish in Los Angeles so as to ensure liabilities are respected. For example, the agreement should specify how much power and influence each partner has when it comes to making decisions on behalf of the business, such as operations, finances and legal matters.

More importantly though, it should also specify the extent of each partner’s personal liability and responsibility. For instance, in Los Angeles, some agreements may look to make each partner liable for any debts the business owes from the actions of their respective partners.

4. Dispute Resolution

No one should ever enter a partnership without a plan to resolve any potential disputes between partners in the future. Having a dispute resolution strategy in place is important to prevent any potential misunderstandings from escalating out of control.

A good plan should begin with a stipulation that explains how and when a dispute will be handled. Incorporated into this should also be a timeline so as to allow for any disputes to be settled with minimal disruption to the business’s operations.

Depending on the situation, partners in Los Angeles may wish to include a clause in which one or more third-party arbitrators are appointed to help resolve the dispute. If, for whatever reason, this is not an option, partners can also opt to settle any disputes through mediation or negotiation — two methods which could prove much more cost effective for all involved.

5. Dissolution

Finally, it is important to include an exit strategy in the agreement, just in case the partnership needs to be dissolved or terminated at any point. This should include a legal strategy and consequences for any parties that decide to pull out of the partnership prematurely.

Given the strength of most agreements, a dissolution clause can become very important in the event of a dispute between partners. Most agreements will include some form of an agreement that defines how and when a reciprocal withdrawal can be made from the partnership.

It’s also recommended to include information on the disposal of assets owned by the partnership and any liabilities due for payment. This section should also detail how the capital and profits of the partnership should be distributed between partners, and how any disputes that may occur should be handled.

When creating their partnership agreement, Los Angeles businesses have a lot to consider. From determining the structure to defining dissolution terms, each of these 5 key considerations should be carefully outlined before the agreement is finalised. By researching the types of partnerships that are available and consulting with qualified attorneys, those in the Los Angeles area can ensure their partnerships follow all legal regulations and provide a mutually beneficial agreement that both parties can adhere to.


partnership agreement,

Los Angeles,

business lawyers