Top 10 Mistakes Businesspeople Make When Forming Partnerships

I am not a lawyer, but I am a law student. This article is off in some key ways.<p>1. Not having a signed partnership agreement.<p>A partnership usually arises without a partnership agreement. People just start doing business together. If your agreement is silent on an issue, default rules will apply. Get your state's UPA (Uniform Partnership Act) rules to see what will apply.<p>2. Not having an attorney assist with drawing up the agreement.<p>Make your own first. Then go to the lawyer. This will save you some money and give the lawyer and idea of what you want. Your first draft doesn't have to be elaborate, and it shouldn't have legalese. Just describe what you want.<p>3. Not including a way out<p>Some partnerships have no way out and partnership is dissolved when a partner leaves. See if this applies to yours.<p>4. Not using your individual strengths<p>Ok here.<p>5. Not forming a limited partnership<p>This is bad advice. A limited partner in an LP has no personal liability, but also has no say in how the business is run. The general partner does have personal liability and runs the business. The general partner will be liable for partnership debts.<p>Better advice is to form a limited liability partnership (LLP) or a limited liability limited partnership (LLLP). General partners in those can obtain no personal liability by registering with their state. This is by statute. Check your jurisdiction.<p>6. Not considering the liability issues.<p>Ok here.<p>7. Rushing in<p>Ok here.<p>8. Not adhering to state requirements and regulations<p>Actually, they usually aren't that bad. I am in Massachusetts. Here you have to file a 1-2 page report each year listing the business headquarters, directors, stock issues, and pay a few hundred dollars.<p>9. Choosing the wrong partner<p>Ok here.<p>10. Not adequately capitalizing the partnership<p>The article got this right and it is a big issue. Failing to adequately capitalize the business is against the law. Courts dissolve businesses when this happens and may "pierce the veil" and hold people with limited liability personally responsible for partnership debts.

Someone should compile the Top 10 "Top 10 lists" of the day.

"Not having a signed partnership agreement. All types of partnership should have every detail spelled out and signed by all parties. Far too many friends, and even family members, have made the mistake of not putting everything in writing and ending up with strained relationships."<p>Partnership agreements don't avoid strained relationships between partners-- shared understanding does. A thorough discussion at the beginning is a big part of this, but it's important to have frequent chats to make sure the partners understand the other's perspective.<p>The document MIGHT help avoid a lawsuit... Though I imagine a lot of people might be lax on maintaining that shared understanding if they have the document as a crutch.

Top 3 mistakes businesspeople make when forming partnerships:<p>1. Trusting the relationship at the expense of a signed agreement: the relationship is critical, of course, but relationships can change. So all details should be spelled out on paper.<p>2. Not getting adequate legal advice: your attorney can help with paperwork, your structure (LLC? LLP?), and the terms between the partners.<p>3. Assuming that good friends make good partners: they can, but friendship and business partnerships are more or less orthogonal. And you don't want to put yourself in a position where you make a bad decision for your business because you won't jeopardize the friendship, or vice versa.

Good list. Having been there myself, I'd summarize as "Trust, but verify". I got screwed (royally) by my partner of many years, in part because there were insufficient legal protections in place (which would have been trivial to implement when times were good and everyone was friends.)

Wise Old Man: "You don't go into a partnership because you want to, you go into one because you must."

"Choosing the wrong partner."<p>duh

This is the second 'top 10' list you've submitted in under ten minutes.