Partnerships are an amazing thing. So many businesses succeed because they are a partnership. However, if not properly structured and maintained, with lots of communication, they can destroy a business.
Every week our firm gets call from clients around the country who have lost money by investing with friends, family or neighbors they trusted—but who were not licensed to sell securities or did not properly document the relationship as a partnership.
Let me assure you, it’s not IF a partner, vendor or customer is going to drag you into a law suit…it’s WHEN. I see so many investors and small business owners lose their business and sometimes everything, including their savings, to a deal gone bad and poor documentation.
Please realize that you actually may have a unique situation and there isn’t a one-size fit’s all approach or answer to a every new business situation. You will most certainly have a set of facts that are different from friend’s, mine or anybody else.
I am constantly amazed at how many people will invest or loan hundreds of thousands of dollars to their neighbor or fellow church member without getting anything in writing or security. I just hear the constant excuse: “I didn’t want to hire a lawyer because it would have made the relationship uncomfortable and I trusted them.” Investing with people you know or who seemingly have a great reputation and tract record may be comforting, but it has no bearing on whether an investment is sound or the documentation to protect you is sufficient.
Partners can be the best thing that ever happened to your business, or the worst if entered into improperly. Thus, don’t be afraid of a ‘partnership’, but just be committed to documenting it properly and considering all of the issues.
Many people think that all they need to do is file one piece of paper with the State and you have a valid and effective LLC. Actually, at that point you have only completed about 25% of the process.