Legal Question in Business Law in California

Re: Partnership Agreement

This is unfortunately one of the "how long is a piece of string?" genre of questions. Most business lawyers will have one or more boilerplate partnership agreements in their word processors which can, after a brief interview with the prospective partners, be modified to fit a very simple situation with only a couple hours' actual work. Multiply that by the hourly rate, and bingo!

If the agreement is to be tailored pretty much clause-by-clause to a specific situation, the lawyer will spend much more time, and will custom-draft provisions, especially where there are more than two partners or there will be disparities in their capital contributions, services to the partnership, and their draws and tax benefit allocations. A few factors to consider:

1. Initial and follow-on capital contrubutions: size, nature, timing, effect of failure to make.

2. Duties (services) to be performed, and compensation, if any. Often, partners don't receive salaries; they only get distributions from earnings.

3. Businesses the partnership will and will not engage in.

4. Duration of the partnership.

5. Resolution of disputes; deadlock-breaking; buy-sell and valuation agreements, if any.

Twenty pages would not be unusual for an agreement covering three partners and involving total capital contributions in the $500K to $1 million range. This could take two or three days time spread over a couple of weeks for an attorney with a typical schedule. Few of us could begin work on an agreement immediately.

The number of partners is always a factor.

Another very important variable is whether the partners know what they want and are already in agreement on their "deal." When the deal still has to be negotiated between the prospective partners, it will take longer and cost more, and at this point it is probably better for each prospective partner to be represented separately rather than by the same attorney, although one will have to take the lead to a greater or lesser extent in drafting the agreement.

Finally, I always gently suggest that maybe an LLC or S corporation might be a better choice.

Re: Partnership Agreement

Everything that is important to the partners, and all the definitions necessary to spell out the duties, responsibilities, dispute resolution, wind-down issues, profits, debts, liabilities, taxes, insurance, taxes, etc, etc, etc. It should cost a couple thousand dollars to do right, but it depends on how much time is needed to interpret what the people think they want into something they can use and rely upon. For starters, I would never allow clients to enter into a partnership, because of the unlimited liability for everyone else's conduct. A corporation or variant is the only way to go into business. Contact me if interested in doing it right, now, in order to avoid the potential of spending huge legal fees getting you out of trouble or resolving disputes later.