Our Legal Checklist for Entering a New Business PartnershipNoor Tabrizi
There are many benefits to entering a new business venture with a partner, including the combining of expertise, as well as the larger pool of resources to be invested within the business. These advantages allow business owners to expand commercially and reap higher monetary rewards. After considering these factors, it is obvious why it has become the most common business model in the UK.
However, with all these benefits come some hardened risks. Business partnerships can become complicated. Whether one party is not meeting expectations within their business role or boundaries are being crossed, it is easy for these relationships to become strained affecting the business’ performance.
To continue reaping the rewards of a business partnership while mitigating the risks, our expert Contract Lawyers at Adam-Bernard Solicitors have compiled a checklist of legal safeguarding that will protect yourselves from potential trouble:
Firstly, you need to have a detailed discussion on how you will register your company.
There are two main ways you can do this:
- Registering as a limited liability company (LTD) means that the company is a separate legal person from its shareholders and partners. Therefore, all debts incurred by a company are the company’s liabilities rather than the shareholders.
- An alternative is registering the company as a limited liability partnership (LLP) which allows for more organisational flexibility: how profits are shared, removal of capital, and management structure. However, it must be noted though that LLPs are most commonly used in professional business scenarios, like law firms, accounting firms and wealth managers.
Partnership Agreements will need to be drafted. These are the general documents that outline the nature of this business partnership.
There documents include information surrounding:
- percentages of ownership
- perceived length of the partnership
- the duties and obligations of each partner to each other and to business
- the cost responsibility and the equity distribution
- the procedure to resolve disagreements or in times of withdrawal (whether voluntary or by death)
At the stage of drafting and negotiating Partnership Agreements, it would be useful to draft a Confidential Agreement. Therefore, if a potential partner walks away before signing the agreement, they will keep details, such as percentages of ownership, confidential.
Adding non-compete clauses to the Partnership Agreement.
Within business partnerships, all parties are privy to trade and business secrets that other partners may not want to be shared. Clauses like these can restrict their actions even after the business relationship has ended. This may be of use to you if there is any information worth protecting in your business model.
When outlining duties for the individuals; sometimes one partner may have more managerial duties than the others. Therefore, they may need other specific types of agreements such as Managers Agreements.
As managers usually facilitate the day-to-day running of the business, these agreements can aid in specifying the duties that are expected of them and include specific confidentiality clauses to protect the private information processing that their job will entail.
The steps we have outlined will simplify the relationship between business partners, saving disagreements, resentment and costly dispute costs! Our expert Lawyers at Adam Bernard Solicitors can provide your business partnership with these services, so you can concentrate on the success of your business!
Edited by Sara Hussain
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