Legal Question in Business Law in California

When entering a partnership in a small buisness what are some ways of protecting

When entering a partnership in a small buisness what are some ways of protecting my investment.


Asked on 4/13/00, 11:41 pm

4 Answers from Attorneys

Andrew Thomas Thomas & Thomas LLP

Re: When entering a partnership in a small buisness what are some ways of protec

First, what is your role going to be? Are you just investing money or will you participate in the business. If you are just investing, consider characterizing your funding as a loan payable with interest. If you are participating, draft a partnership agreement, but know that partners are personally liable for all debts incurred by the partnership. You may want to consider forming a corporation or a limited liability company, both of which generally limit liability to the company's assets. In any event, one of the best ways to protect yourself is to make sure the company buys the right kinds of insurance (e.g., workers compensation insurance, a CGL (comprehensive general liability) policy with endorsements tailored to your business and, if applicable, an errors and omissions policy). In drafting a partnership agreement, be careful to spell out not just how profits and losses will be apportioned among the partners, but whether the partners are or are not required to make ongoing additional contributions if the business runs out of money--and also prepare a "buy-sale agreement," which is a contact among the partners stating their rights to sell their partnership interest and the rights of your family or heirs if you die and your rights if you ever become disabled.

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Answered on 4/27/00, 12:12 am
Christopher Enge Law Offices of Christopher J. Enge

Re: When entering a partnership in a small buisness what are some ways of protec

You don't give a lot of detail on the type of business or your role, but here are some things that come to mind:

1) Written partnership agreement, to avoid misunderstandings about who is responsible for what down the road;

2) Form the company as a corporation or limited liability company, to make sure creditors can only reach the assets of the company, not your personal assets;

3) Buy insurance for expected liabilities;

4) If you are going into business with someone you don't know, do your due diligence and look at all relevant financial records;

5) Talk to an accountant about setting up good recordkeeping systems.

Let me know if you would like to talk in detail so that I can advise you on your particular situation.

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Answered on 4/24/00, 5:03 pm
Ken Koury Kenneth P. Koury, Esq.

Re: When entering a partnership in a small buisness what are some ways of protec

The investment in the partnership will always be at risk so you need to make a business decision re whether it is worth the risk. Also, in a partnership, your assets above and beyond the investment will also be at risk unless you do something like incoroporate the business or form a personal corporation to make the investment for you.

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Answered on 4/24/00, 6:13 pm
Scott Shabel Law Offices of Scott Lee Shabel

Re: When entering a partnership in a small buisness what are some ways of protec

I assume, from your question, that you will not be actively operating the business. If you are, there are a host of concerns which you must address if you are starting up a new business, too numerous to mention here. Whether you decide to protect yourself from third party liability by using a limited partnership, limited liability company, regular corporation or subchapter-S corporation, you can best protect investment by signing a partnership/operating/shareholder agreement which spells out the rights and remedies of the owners with respect to each other. Such an agreement should include privisions regarding the management of the business, capital contributions (present and future, if needed), accounting issues, transfers of interests and resolution of disputes, as well as industry specific issues. To find out more, visit our website @ labusinesslawyer.com.

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Answered on 4/24/00, 7:35 pm


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