01 | Decision-Making Protocol
Establish a clear decision-making protocol. Do decisions need to be made using a consensus or a majority vote? What happens if there is a tie or a consensus can’t be reached? Laying out the policy for how decisions for the company are made will help avoid issues and conflicts in the future.
02 | Capital Contribution Documentation
Ensure meticulous documentation of each partner’s capital contributions, specifying who contributed what and when. Plan for a scenario in which capital runs out and address whether partners will infuse additional capital, seek external funding, or contemplate closing the business. Proactive consideration of these scenarios now can possibly stop a financial crisis later.
03 | Salaries and Distributions
Define the parameters for partners to withdraw money from the business. Address questions about the reimbursement of initial investments and explore scenarios where a partner might want to reinvest profits for an extended period. This clarity fosters financial stability and minimizes potential conflicts.
04 | Dispute Resolution
It’s prudent to include a well-defined dispute resolution mechanism in your partnership agreement. Whether through mediation, arbitration, or another agreed-upon process, having a pre-determined way to address disputes helps partners find amicable resolutions without resorting to costly and time-consuming legal battles. This approach also fosters a collaborative environment, ensuring that challenges are navigated smoothly, and the business continues to thrive even in moments of contention.
05 | Death and Disability Contingencies
Discussing what happens in the event of death or disability may be uncomfortable, but it’s important to go over what will happen to a partner’s shares if he or she dies or becomes disabled and can no longer contribute to the business. Having this information in a legal agreement will help you create individual estate plans that address your business holdings. Unfortunately, we see many partnership agreements that overlook this altogether.
06 | Dissolution Plan
Facing the eventual departure of a partner can be a delicate subject, but establishing a clear dissolution plan at the outset is essential. Agreeing on the exit strategy in advance prevents confusion and potential disputes during the business relationship’s conclusion.
Setting The Foundation for Business Success
If you want to make sure your business avoids the common legal pitfalls that partnerships often encounter, start the process by consulting with us.
AB Law, PLLC is a full-service business law and estate planning firm that serves clients throughout Texas. All consultations are free and no question is too silly, ridiculous, or complex. https://calendly.com/ablawpllc www.ab-firm.com