Partners For Profit

From limited partnerships to corporations, forming a successful business alliance takes time, planning and research.

court for years, often ending in the destruction of the business itself. To protect against this scenario, partners should draw up a “prenuptial’, agreement before wedding the
ir resources. This document would outline each person’s obligations, plus establish conditions of performance. To the extent possible, partners should quantify expected contributions and establish measurements–almost like a performance plan. It should also address how partners will leave the business or new partners will enter.

This document is called a partnership agreement in a general partnership, an operating agreement in a limited liability company or limited partnership, and a shareholders’ agreement in a corporation. The shareholders’ agreement should be done in conjunction with an employment agreement, which spells out what happens when employees leave the company.

Taylor also notes a “disturbing trend” in which mainstream companies that partnered with black-owned companies during the 8(a) affirmative action heyday are now dissolving those partnerships to pursue the same contracts on their own. When forming such joint ventures, protect yourself with an agreement (i.e., a noncompete clause) that restricts departing partners from doing business with current clients after the partnership ends. Often the departing company will take key executives or staffers with them, a problem that can be redressed with an employment agreement (or noncompete clause) that determines how companies will deal with defecting employees.

You may not prevent the actual loss of business, but with the proper agreements in place, you can sue the former partner for what’s known as tortuous interference in your ability to do business, or wrongful conduct.

If a problem can’t be resolved amicably, outside arbitration may be a less costly solution than taking your battle to court. This will work only if you already have a mechanism, or an agreement, in place that will help the third party decide how to settle the dispute. Each partner should retain his or her own attorney, and all must agree to the process and to abide by the decision. An alternative dispute resolution firm may charge anywhere from $500 to $],000 to review the situation and render an objective decision in less than 30 days.

On the other hand, litigating through the courts can take from two to three years and cost anywhere from $10,000 to $100,000 or more in attorney fees and court costs, not to mention time lost from the business.

Remember too, that while you’re in litigation, it’s nearly impossible to obtain loans or credit from banks.

Horror stories about bitterly feuding partners and lost dreams should not scare you from partnering, but they do impart a warning: It takes work to ensure that a partnership will be both profitable and personally satisfying. Says Cynthia Jones of her partnership, which she likens to a marriage: “Keeping our relationship peaceful and productive requires that we communicate candidly with each other, appreciate each other’s strengths and accept and compensate for weaknesses. Most importantly, we trust one another completely.”

Never forget, however, that in business, trust goes a lot further when you put everything in writing first.

HOW TO LEGALLY SET UP
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