BUSINESS PARTNERSHIP ISSUES

YOU MUST AVOID

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TABLE OF CONTENTS

Failing to negotiate a written partnership agreement

Introduction

Failing to focus on how ownership is divided

Putting your personal assets at risk

Not planning for the future

Not fulfilling legal requirements

Not planning property for taxes

Get the help from us

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“Operating a business as a partnership can be beneficial because the partnership relationship allows you to pool knowledge, resources and work effort.”

However, whenever people go into business together, there are risks of disagreements down the line. You not only need to be concerned about your ongoing working relationship with your partner, but you also need to consider what would happen if anyone needed to leave your partner-ship.

When you are embarking on a business partnership, there are some mis-takes that could doom your fledgling company before it even begins. These are some of the most common partnership issues to avoid:

INTRODUCTION

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FAILING TO NEGOTIATE A WRITTEN PARTNERSHIP AGREEMENT YOU MUST AVOID

There will inevitably be conflicts when groups of people work together. The key is for those conflicts to be healthy, rather than to undermine the success of your business.

A written partnership agreement should make everyone’s roles within the organization clear and should provide an outline for how conflicts are to be resolved.

When everyone knows their role, this can keep disagreements from arising in the first place. When a difference of opinion does inevitably arise, you can also refer to the partnership agreement for details on how to resolve it.

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FAILING TO FOCUS ON

Every partner should know exactly how much of the company he owns and how profits are distributed. Owners who know exactly what they are working for are likely to be more motivated to the success of the business.

Furthermore, some of the most difficult fights to resolve are about money. You want to ensure that it is clear to all involved parties exactly what their financial interests are in the business.

HOW OWNERSHIP IS DIVIDED

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PUTTING YOUR PERSONAL ASSETS AT RISK

When you start a partnership, you could become personally liable for the debts of the business as well as for any judgments that are awarded against your business in litigation.

Under Australian law, each partner is jointly and severally liable for business debts and liabilities. This means even if your partners are the ones that make bad financial choices, you could become responsible for personally paying for those mistakes.

You want to make sure you explore ways to limit your personal liability so you do not face a financial disaster if one of the partners makes a bad decision when operating the partnership.

If you are concerned about taking on the debts of the business, you may want to consider another type of company organization instead of a partnership.

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NOT PLANNING FOR THE FU

TURE

Everyone starts a business with good intentions, but life happens.

A partner could become disabled, could pass away, or could divorce.

Any of these things could make the future of your company uncertain.

What happens if one of the partners dies, does he or she get to leave the business to whomever he wants?

You need to account for these things and create a buy-sell agreement that ensures you have control over what happens with your partnership in the future.

What if you do not get along with that person?

If someone divorces, is there a risk that his or her ex-spouse could get an

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NOT FULFILLING LEGAL REQUIREMENTS ASSOCIATED WITH

FORMING A PARTNERSHIP

In general, you are required to register the business name of your partnership with the Australian Securities and Investments Commission.

Registration is mandated unless the surnames of all partners involved are used in the name of the business. Registration is just one legal mandate that you must fulfill before you begin operating as a partnership.

An attorney can provide you with comprehensive information about exactly what you need to do to comply with the law.

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NOT PLANNING PROPERLY

FOR TAXES

Partnership profits and losses pass through to the partners/owners who pay the taxes on their personal return.

Do not count on the partnership itself to pay the taxes, but be sure to set aside money that you may owe to the government if the partnership makes a profit.

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NOT GETTING

LEGAL ADVICE

There are many complex legal issues that arise when you start a partnership.

To get help negotiating the documents that you create and sign, and to ensure you have protected your interests, it is advisable that you get legal advice. In fact, each partner should ideally have his or her own attorney representing his interests during negotiations, the drafting of an agreement, and when the partnership is formally created.

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GET THE HELP FROM US

Forming a partnership is a major decision that can have a profound impact on your future success. An experienced business law specialist at Owen Hodge Lawyers can provide you with guidance and legal advice as you start your partnership.

With help from an experienced business law expert, you can get off on the right foot and take smart legal steps to protect your interest and your company’s future. Contact us today at 1800 770 780 or contact us via ohl@owenhodge.com.au to schedule a consultation with our experienced business lawyers.

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