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Partnerships can often provide tremendous benefits to a business endeavor in terms of pooling the best talent, skills and resources from one than one parties. Unfortunately, mistakes often occur when forming either a general or limited partnership which could damage the business.
Here are three of the most common mistakes:
No written agreement. Often, two or more people that know each other tend to think there is no need for a formal written agreement between them. This can be a big mistake given that a business can often strain or ruin a personal relationship. Regardless of the type of partnership, all details should be spelled out and signed by all parties to avoid potential problems down the road.
Provide a way out. Sometimes, things just don’t work out between two parties. Having an exit strategy that allows either party to walk away or buy each other out, without destroying the business is an absolute must.
Failure to consider a limited partnership. Some businesses function successfully as general partnerships, however, there is a primary advantage to forming a limited partnership. Limited partners are generally not liable for the actions of the general partner. This is beneficial if you’re only financially backing a business or can’t put in the same time and commitment.
