Prudent Partnering

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Entering into a new partnership is exhilarating. You developed a winning concept, secured funding and found the perfect location. You and your new partner are in perfect harmony, and your future together looks bright. What could go wrong?

The rhetorical answer is, of course, “a lot.”

Much like the beginning of a romantic courtship, it is natural to get swept up in excitement at the expense of planning to maintain a long-term partnership. A partnership is a marriage. You are commingling finances and making mutual promises to bind your lives together in ways that require a legal process to unbind. You may even spend more time with your partner than your actual spouse. For these reasons, treat your operating agreement with the same care you would a prenuptial agreement:

• Don’t rush. In the sprint to secure a lease, permits and licenses, many new partners assign the operating agreement a low priority. However, the negotiation process often reveals “deal breakers,” e.g., a partner’s unwillingness to commit to terms they orally agreed to, learning you made incorrect assumptions about a partner’s ability to run the business or fund additional capital, learning of a history of unflattering lawsuits in the due diligence process, etc. Resolving terms in writing before signing a lease with a personal guaranty is advisable.

• Pay attention to your partner’s negotiation style. Did your partner present written terms that are fair, or skewed heavily in their favor despite a 50-50 partnership? Is your partner willing to compromise, or are they engaging in strongarm tactics to get their way? Are they able to have difficult conversations and resolve conflict? Your partner is showing you the type of person you should expect to deal with for the duration of the partnership.

• Communicate about roles and expectations on a granular level. Do you expect your partner to be present every day to manage the business? Should they expect a management fee? If one partner owns other businesses, how do you handle potential conflicts of interest? Do you share the same outlook on expenses? How will you resolve a tie vote? Resolving important topics in advance may be uncomfortable but spares you resentment, conflict and attorney’s fees.

• Talk about the end. Death, withdrawal of a partner and bankruptcy must be considered and planned for. What are a partner’s bad acts that warrant terminating the partnership for “cause”? Should the wrongdoer incur a penalty?

Communicating with your new partner on these topics provides the partnership with stability and increases your odds of “happily ever after.”

Tuckey Law, LLC covers all of your legal needs for opening.

– You can find the Tuckey Law ad on page 2.

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