It is not necessary to file any paperwork with the state to form a general partnership. You and your best friend can start that business you’ve always dreamed of owning, and the only legal requirements you will need to comply with are those imposed by the city and county in which you do business. However, operating a partnership without a formal agreement, even with close and trusted friends and family, can lead to significant problems.
When starting a business you aren’t necessarily thinking of how the partners will share losses and what happens if the business or partnership ends. These issues may be addressed in a formal written partnership agreement. The agreement may spell out each partner’s contributions, profits and duties with respect to operation of the business. A partnership agreement may address start-up issues such as how much money, property or services each partner will contribute and each partner’s responsibilities.
The agreement may also provide for how profits and losses will be divided and how profits will be paid. You may also make provisions to handle buy-outs by one or more of the partners, permitting others to buy in to the partnership and successor issues arising on the death or disability of a partner.
Partners can also resolve potential issues involving continued or future use of the business name and logo if the partnership is dissolved or one of the partners leaves the business.
If you do not have a formal partnership agreement and a dispute develops at a later time, you could find yourself in a costly and lengthy lawsuit that may prevent you from operating your business. When there is no written partnership agreement and the parties dispute their rights and obligations in the partnership, courts usually apply California’s Revised Uniform Partnership Act to determine the partners’ rights. This act provides that each partner has an equal share in the profits, losses and management of the business, which may not be the division contemplated by the partners.
By resolving these matters before you embark on your business enterprise, you can ensure that all partners agree to and are aware of their rights and obligations and so avoid future disagreements and lawsuits. Consult with your accountant and attorney before entering into a partnership agreement.
For further information or to schedule an appointment, call Joyce Helock at 661-414-7123.