You and your partner(s) may need to secure financing to obtain capital for the launch of your business. Or, if you have already started your business with partners, it may make sense to be sure you are legally protected (personally) from any business debt.  If you create a general partnership and end up leaving the business, you could still be liable for any business debt the partnership takes on and fails to pay. The following are some tips for protecting yourself from business debt in a partnership.

• Protect Yourself in a General Partnership

Your business structure will influence whether or not you are on the hook for business debts that go unpaid. Most business partnerships fall into two categories — general partnerships and limited partnerships. General partnerships are when two or more people start a business together. You do not need to create a legal entity to form a general business partnership. Suppose you and one of your good friends shake hands and decide to start a t-shirt printing company together; you started a general partnership.

In many general partnerships, there is no formal, written agreement between the partners. Unless all partners have signed a written partnership agreement, each partner will be equally liable for business debt and any outstanding business payments that go unpaid. Many people opt for a general partnership because it is less formal, but this business structure does not protect an individual’s (or a partner’s) personal assets from business liabilities (i.e. debts, lawsuits, etc.). 

In other words, if a patron or customer brings a lawsuit against the business and is awarded a large verdict, or sum of money, the plaintiff could seek to collect from you personally (which also means s/he may collect against your personal property or other personal assets).  A better option is to have all the partners sign an agreement which limits each one’s personal liability for partnership obligations, debts and/or liabilities.  This agreement should also include a limit of liability should one partner leave the partnership for any reason, or under certain circumstances. 

In a general partnership, every partner is 100% liable for the partnership/business debts and liabilities, including debts from loans, capital or financing, and damages awards from lawsuits. At Resnick Law, we can review your partnership and advise on whether you should become a limited partnership or require all partners to sign a contract limiting liability. In the alternative, there may even be a better business structure for your endeavor. An experienced attorney can help you determine the best structure.

• Protect Yourself in a Limited Partnership

A limited partnership is an agreement between a general partnership and a limited partner.  Limited partnerships must be registered and have formal documentation of the agreements between any general and limited partners. The limited partner often acts as an investor or as a less active member of the business. In limited partnerships, the general partner is typically the person who is exposed to the greatest share of potential liability for business debts. The limited partner is often only accountable for their business interest in the company. 

• You May Need to Set Up an LLC or Corporation

If you are concerned about being liable for your business debts, you may want to create an LLC or corporation. When you do so, you will separate your personal assets (i.e. your home, retirement savings, or other property) from your business assets.  Personal liability in an LLC or corporation would generally only come about if you signed a personal guaranty for a business debt, or in some other special circumstances.  Generally speaking, however, an LLC or corporation protects the individual partners, members, shareholders, etc. from personal liability of the business debts.  

• Contact an Experienced Business Lawyer in Michigan

Speaking to an experienced business attorney is one of the most important things you can do to protect yourself from business debts and set up your business and personal life for success. At Resnick Law, our experienced business lawyers are ready to help.  Contact us today to schedule your initial consultation.

While there are several common ways that partnership disputes arise, there are several strategies that can be used to resolve them. 

Disagreements Among Partners

Some of the most common types of disputes that partners encounter include:

• Intellectual property disputes. If a company is based on one partners’ intellectual property, it is possible to take steps against this asset being classified as company property. This is why there should always be clear documentation about who retains the asset and how it is handled during and after the life of the business.

• Monetary disputes. Business partners often disagree about how money should be spent. In many partnerships, one individual manages operations while the other decides how money is handled. To avoid disagreements over finances, it is a good idea to make clear ownership rules up front. In terms of compensation, both partners should be honest about how much time they put into the company and take the corresponding amount in salary.

• Operational disputes. Many partnerships begin with co-equal management and the partners intending to make decisions mutually. Disagreements, however, can still arise because one partner might feel that the other partner is not performing his or her job. One of the best ways to avoid escalating conflict is to clearly outline the process for dispute resolution in your partnership contract. 

Tips in Resolving Partnership Disputes

Some strategies that can be utilized to reduce partnership disagreements include:

• Actively listen. Practice “active listening” in which each partner agrees to compassionately listen to the other’s position without interjecting. 
• Avoid rush judgments. For small companies, even small decisions can be critical. If partners disagree about an issue, it can be easy to end up in an argument. Rather than rush into a decision, relax and consider your partner’s position.
• Plan in advance. If you anticipate that certain topics will result in disputes, attempt to plan how to handle these disputes ahead of time. 
• Seek outside help. Realize that outside help can be useful. Mediation can be a great choice in these situations. Mediation is focused on reaching a fast and effective resolution that benefits both parties in a dispute. If mediation is undesirable for some reason, it might be time to consider retaining the assistance of a knowledgeable corporate lawyer. 

Speak With an Experienced Business Law Attorney

At Resnick Law PC, our attorneys have helped business owners resolve disputes. Contact us today by calling (248) 642-5400 today to schedule a free case evaluatio

Some of the best business ideas come from partnerships among friends. In fact, many people find that a partnership is the best option for managing a business. While partnerships work well for some entrepreneurs, others discover that a business partnership is not the best working model for their business. If you are currently engaged in a

Common Reasons to Dissolve Business Partnerships

Some of the most common reasons that business partners cite in dissolving their partnerships include the following:

• Failure to follow through: In these situations, one partner often believes that he or she is capable of handling a number of critical business tasks. As a result of lack of time or skill, however, these tasks are not performed. When the partner ultimately fails to perform these tasks, serious problems can arise. The other business partners in this situation may seek to dissolve the partnership.

• Difference in communication patterns: Differences in how business partners communicate can create substantial obstacles. Different communication styles can leave partners with differing expectations of the business partnership.
• Different investment levels: Sometimes, there is a substantial difference in the investment of time and money that partners make to the partnership. When this happens, it can lead to arguments among the partners.

Deciding to Dissolve a Partnership

There are several different ways in which a business partner can decide to alter the structure of a business. In some situations, making changes to a partnership can let one partner take a majority share and increased control over decisions while minimizing the amount of control that the other partner might have.

Sometimes, however, changing a partnership is not enough. In these situations, partners sometimes decide to buy one another out of a business. In these situations, the partners must carefully negotiate the terms of the buyout agreement. The assistance of a knowledgeable corporate attorney is critical to make sure that the agreement is properly written. Although dissolving a partnership is a particularly serious change for a business, many business owners discover that it is the best option for the ensured success of the venture.

Speak with an Experienced Business Lawyer

A business attorney has the ability to handle numerous complications that can arise during the management of a business including the dissolution of a partnership. While it is always a better idea to work through problems as they arise, we understand that this is not always possible and sometimes the only option left is to end a partnership. No matter the challenge your business is facing, the assistance of an experienced business attorney will make all the difference. Contact Resnick Law today to schedule an initial free case evaluation.

(image courtesy of Matt Botsford)

Buy-sell agreements are enforceable contracts that govern what happens when a business co-owner leaves a business. In these agreements, the business owners agree to an exit strategy for a leaving owner, including buying out his or her interest in the business at a pre-agreed price. Instead of a guaranteed purchase, some buy-sell agreements give the remaining owners a right of first refusal to buy the business interest of a departing owner.

Buy-sell agreements can be drafted as part of a business’s organizational documents or as separate documents. Some businesses are required to have buy-sell agreements in place as a matter of law.

The value of negotiating this kind of agreement before the actual event causing a partner to leave takes place is that all parties will come to the negotiation on more or less the same footing. If it is left until the last minute, the departing business owner or his or her estate may feel that the terms negotiated for the sale of his or her interest in the business is not fair. Alternatively, the remaining business partners may feel the departing business owner is making too many demands. With each side feeling dissatisfied, lawsuits to resolve the issues are more likely to be filed.

Buy-sell agreements also provide predictability on business continuation, which is valuable to shareholders and customers. Customers are likely to face fewer interruptions in service when the business is transitioning out an owner. The buy-sell agreement also provides a market for the sale of the business interest where it may not otherwise exist.

There are several methods used to determine the value of a business for purposes of determining the future price to be paid when a business owner leaves. The owners can agree on a fixed price, set forth a detailed formula to determine the sale price of business shares later on, or use an appraiser. The method used for each business depends on the kind of business and on the method the owners agree to use. In some cases, the shareholders may be required to hold regular meetings to set or review the sale price. This can help ensure that the sale price always reflects a fair market value.

Contact an Experienced Business Attorney

There are many legal considerations that go into drafting a good buy-sell agreement. This is a document that should be drafted by an experienced business attorney who can offer legal advice on any issues that may arise as the document is prepared. For more information on how an experienced business attorney can help you prepare a buy-sell agreement, contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan, to schedule a consultation.

(image courtesy of Samuel Zeller)