LEGALLY SPEAKING
NUTS & BOLTS OF PARTNERSHIP AGREEMENTS
A Jamie M.
Brabston, Lehr Middlebrooks Vreeland & Thompson, P.C.
partnership is a single business where two or more people share ownership. There are generally three types of partnership arrange- ments: General Partnerships, Limited Partner- ships and Joint Ventures. Regardless of which type you choose, you need to enter into a written Partnership Agreement, signed by all partners, to protect yourself and your business prior to its formation. Common terms to be covered in the agreement include the following:
1. Capital Contribution. Clearly record exactly how much each partner contributes to the partnership prior to its formation. These contributions are often used as the basis for the ownership percentage, but this is not always true, particularly if one partner intends to work the business full time, but the other simply puts up cash.
2. Decision-making/Resolving Disputes. You need to establish a decision-making process in advance so your business operations can run smoothly, rather than resulting in frequent stalemates. And if you and your partners reach a point where you cannot agree? It is recom- mended that you include a mediation clause providing a procedure to resolve major con- flicts without the time and expense of court. 3. Salaries/Distributions. Unless the agree- ment indicates otherwise, profits and losses are typically allocated in proportion to a partner’s ownership interest. The agreement should address whether partners are permit- ted to take a “draw,” which is an allocation of profits from the business prior to actual distributions among all partners. 4. Who Can Bind the Partnership? Generally speaking, any partner can bind the partner- ship without consent from the others part- ners. You clarify at the outset what type of consent a partner must obtain before he/she can obligate the business.
5. Death/Disability/Dissolution. You should always discuss at the beginning of the rela- tionship what the end will look like if one of these scenarios occurs: Who will you trust to make decisions on your behalf in the event of incapacity? If you die, who will inherit your interest in the business, and will they have a say in future decisions? What happens if one partner wants to leave the partnership? To manage these situations, you are encouraged to develop a buy/sell agreement to establish a method by which the partnership interest can be valued and the interest purchased either by the partnership or individual partners.
This list is certainly not intended to be all-in- clusive. You and your potential partner(s) must make it a priority to discuss and nail down the governing provisions of your venture, prior to entering into a partnership, so that you can best manage, protect and grow your business. 7
Jamie M. Brabston, Lehr Middlebrooks Vreeland & Thompson, P.C.
Phone consultations with LMVT are a member benefit and are included in the cost of NALP membership. Please call the LMVT main office at 205-326-3002 and ask for Richard Lehr.
30 THE LANDSCAPE PROFESSIONAL > MARCH/APRIL 2016
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