During the course of my practice, I have represented clients who filed suit against former partners for breach of contract and other claims. Among the most common claims include when one of the partners embezzled money from the company or one partner kicked out the other from the business and changed the locks to the business.
Partnerships between friends and relatives are a high risk proposition unless done correctly. I have seen life long friendships destroyed over businesses and family relationships strained and severed after a business fails or if one partner felt that his/her trust was violated by the other partner. This does not mean however, that all partnerships are not successful. I have seen very successful partnerships thrive.
If you are contemplating entering into a partnership, below are some suggestions to keep in mind:
Have a partnership agreement drafted by an attorney.
Decide how the business will be funded.
What type of entity will you form (Corporation, Limited Liability Company, etc.)
Have well defined areas of responsibility.
All have equal access to the bank records of the company.
Have clear procedure on authorization of payments from the checking account and use of corporate credit cards.
Use an accounting firm to keep the books.
Keep minutes of meetings and adhere to corporate formalities (i.e. annual meetings of directors and shareholders).
Have a written agreement on how each of the partners will be compensated.
Have a clear method for resolving disputes.
Have an exit plan if one of the partners leaves the partnership.
Business partnerships just like most relationships will face many challenges; however, with proper planning and a well-drafted shareholders or operating agreement, many of these issues can be avoided. In future blogs, I’ll address some of these items individually. Good Luck with your business!
During the course of my practice I am often surprised about how many business owners are willing to enter into a commercial lease without the assistance of an attorney. Unless you are in a home-based business, chances are that you will enter into a lease for your business. Other than payroll, most likely your lease will be one of your highest monthly expenses that you will have on your business. Commercial leases are complex contracts typically drafted by attorneys who specialize in drafting these documents. It is unlikely that a lay person would understand the language and clauses contained in a commercial lease.
The landlord’s objective is to generate income from the rental of the commercial space from the tenants. Therefore, it is important you understand ALL the charges that you will have to pay with your monthly rent. For instance, in addition to the “base rent”, you may have to may CAM or community association management charges, sales tax, insurance, property taxes, percentage of gross sales and other expenses. Another item you should know before signing the lease is the term of the lease and the options to renew the lease. This is a very important item if you are planning to remain on the same location. Last but not least, you need to find out whether or not you have to sign a personal guarantee to enter into the lease agreement. This is very significant and many business owners miss this until it is too late. If you are considering entering into a commercial lease agreement, I recommend you get a consultation with an attorney with experience in reviewing commercial leases. Otherwise, could be one of your costliest mistakes if you decide to “wing it”.
Let’s say for example that your monthly lease payments after all the charges add up to $2500 per month and the lease has 36 months remaining before the next renewal. Upon signing this lease agreement, you just assumed a $90,000 debt with a personal guarantee! I often interview clients wanting to “get out” of the lease after their business goes south. Typically, there are not too many exit clauses on a commercial lease agreement. Keep this in mind as you move forward and good luck with your business!
Rich Sierra
http://businesslawyer.biz
Welcome to the Businesslawyer.biz Blog. Here I will post videos or blogs of various legal topics of interest to business owners.
