Partnerships can create an opportunity for your business to grow and thrive. Sentient Law knows that the ins and outs of such a venture can be challenging for many business owners. Attorney, Matthew Rossetti, is the premier “Slicing Pie” expert in the United States; he will ensure that you structure your partnership right from the very beginning. Whether you are building your business from the ground up or looking to add a partner to your existing business, he will guide you through the entire process. Here, we’ve provided some key information to help ease you through the nuances of understanding partnerships.
Making it legal
A formal, legal agreement between you and your partner(s) will allow you to manage and operate your business as co-owners. You will also share in the profits and liabilities. It is important to be safe, be good, and be prepared. Sentient Law uses a custom dynamic business formation model to create a perfectly fair equity split in the early stages of a company. This makes sure that everyone owns the percentage of the business that they deserve. In other words, you get out what you put in. This is achieved by calculating the input values of each partner. Monetizing and verifying the value you have brought to the company incentivizes each partner to contribute to the business. Setting up this organic agreement means you’ll never have to concern yourself with wondering how to fairly and proportionally divide your company’s ownership.
There are several types of partnership arrangements
Be sure to explore and choose the most suitable arrangement for your business. The most important types of partnerships to consider are:
- General Partnerships: All partners represent the company when dealing with outside parties. Each partner has equal control and the right to participate in decision-making and the management of the business. Furthermore, the risks and returns are distributed equally, unless otherwise stated in your partnership agreement.
- Limited Partnerships (LP): A limited partner has no authority and will not earn equal returns. Their personal assets are protected by limited liability in legal situations, unlike a general partner. Not to be confused with Limited Liability Partnership (LLP).
- Limited Liability Partnerships (LLP): This is a popular business formation because it allows for collaboration without holding all partners responsible for one partner’s mistakes. In this type of structure, some or all of the parties have limited liability, protecting their personal assets if legal issues arise.
- Joint Liability Partnerships: In a joint liability partnership, all partners are equal. They share in all the responsibilities of the business, including liability for financial and legal issues.
- Several Liability Partnerships: This is a complex arrangement. The weight of responsibility can shift, depending on the specific duties and responsibilities of each partner. Liability could fall to a partner for lack of due diligence and the legal responsibilities can be divided depending on where the obligation lies.
Who’s who and what’s what?
Going into a partnership can leave you a bit confused as to what your role is in the company. To clear things up, here are some terms that may help you understand your role and may serve as a guide when seeking out potential partners.
- Founder: The person or persons that created the company. The owner is not necessarily the founder. Your new partner can be an owner as well, however, if you forged this entity you are the founder.
- Investor: Any person, company, or entity that invests capital into a business and expects to earn a rate of return. An investor may put money into the business or purchase stocks from other investors. The main objective is to maximize profits and minimize risk. Investors may contribute with labor, provide loans, buy shares, or perhaps even guarantee to pay creditors.
- Angel Investor: Typically wealthy, these are individuals that provide a startup with seed money or capital for expansion, in exchange for ownership or equity. They are often willing to invest hundreds of thousands of dollars into a business if they believe they will reap the rewards of your success. However, angel investors are not always motivated solely by making a profit. These are often professionals that are well into their careers and are inspired to give something back and driven by doing a good deed for an aspiring entrepreneur. Angel investors are often referred to as informal investors, angel funders, private investors, seed investors, or business angels.
- Equity Stakeholder: Although stakeholders are commonly thought to be large inventors that can afford to hold a viable stake in a company, there is much more to be considered. In actuality, anyone that invests in a company and whose actions determine the outcome of its business decisions is a stakeholder. These investors have a long-term interest in the performance of the company. They don’t have to be actual equity holders, they can be shareholders, creditors and debenture holders, employees, customers, suppliers, the government, and more. Simply put, stakeholders rely on the success of a business to keep the supply chain going.
It’s never too late to start using the “Slicing Pie” approach
You may already have an existing partnership agreement. Due to ever-changing life events, your existing agreement may no longer be the right fit for you and your partners. If you have an LLC and it is pre-revenue, amending your agreements is straightforward and simple for Sentient Law. Depending on the circumstances, almost all partnership agreements can be amended with the consent of all parties involved. Matthew Rossetti will work with you to create a perfectly fair and balanced agreement and equity split. Set up a 30-minute consultation today to discuss how he can help you.
Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.