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5 Important Pieces of Partnership Agreements

Without a thorough agreement for your business partnership, even a seemingly minor issue can mushroom into a major problem for the company. A partnership agreement is designed to clearly lay out the organization of the partnership and address any foreseeable contingencies that might threaten the company’s stability. While a partnership agreement is not required in Florida, not having one means that issues will be resolved according to state law—which may not align with your wishes. Below is a non-exhaustive list of items to include in your partnership agreement.

1.Provision outlining each partner’s contributions

Business partners don’t always work the same amount of hours each week at the partnership. Some partners don’t spend any time working; they function, instead, as passive partners who only contribute financially. Others might provide operational support and guidance. Whatever your arrangement, make sure you put it in writing Few situations are as frustrating for business partners as one where the other partner doesn’t work as hard. This provision closely aligns with the ownership provision, as well as the profit-and-loss division clause.

2.Clause delineating decision-making authority

Partners go into business together are, to some degree, on the same wavelength when it comes to the purpose and direction of the business. You shouldn’t assume the relationship will never have its rough patches, though. At some point, you and your business partner will disagree on some significant decision. Whose perspective will win out? Hopefully, that’s for you and your business partner to decide well ahead of time. Instead of always deferring to one partner when there’s a disagreement, consider an arrangement where you get decision-making authority on subjects within your wheelhouse, and vice versa.

3.Buy-sell agreement, which can be included within the partnership agreement or as a separate contract

Every business has an expiration date. You probably don’t want to think about this event—especially in the beginning. But, either you or your partner will, at some point, be confronted with the reality of a business partnership without one partner. Regardless of the reason for a partner’s departure—be it retirement, resignation, personal bankruptcy, incapacity, or death—it’s worthwhile to map out the path to settling that partner’s ownership interests. The other partner might want priority rights to purchase it. Another important component of a buyout agreement is the method used to valuate the departing partner’s ownership.

4.Dispute resolution method(s)

If (or when) a fundamental disagreement arises between business partners, it likely isn’t’ in either partner’s interest to immediately litigate the issue. Litigation is relatively long and expensive, and it often permanently damages the business relationship. Business partners would be wise to consider mandating mediation or arbitration to settle disputes, with the option to make the outcome of either proceeding legally binding.

5.Restrictive covenants

Two common restrictive, or negative, covenants having to do with employment law are non-compete and non-disclosure agreements. Non-disclosure agreements prohibit management personnel and key employees from sharing a company’s proprietary information. Non-compete agreements prohibit an employee from working for a competitor during and after his or her term of employment at the original company.

Don’t Forget a Legal Pair of Eyes

Your partnership agreement needs to work for your business and be legally compliant. A skilled attorney can ensure your agreement is on the right side of the law, but a true advisor can help you identify vulnerabilities within your business and counsel you on ways to run a tight ship. Trembly Law Firm can help you with all of the above.Contact us soon to discuss your options.

When Can An LLC’s Corporate Veil Be Pierced?

Incorporating a business means that you and other business partners, owners, or members have created a corporate entity that is separate from your assets and finances. Internal and external stakeholders may bring lawsuits against the business; any judgments resulting from those lawsuits will be held against the company and not your own assets. This corporate veil that divides you and the business is an attractive feature of corporations and limited liability companies (LLCs).
Owners are not completely protected in all cases, however. Circumstances sometimes call for piercing the corporate veil and pursuing an owner’s personal assets or money for a business debt or judgment. Specific conditions must exist for the corporate veil to be pierced in Florida.

Alter Ego or Mere Instrumentality

Case law in the Florida courts have molded the standards necessary for piercing the corporate veil. One important component that must exist is that the company must be shown to be an alter ego of the owner/wrongdoer. In other words, the corporate entity was not independent of the wrongdoer and instead simply existed as an extension of the owner.

One common way that a company becomes an alter ego of an owner is by the owner commingling personal and business funds. For instance, an owner might pay for a personal meal or vacation through company money. Shareholders and employees of a company must be paid a certain way, regardless of whether a shareholder or employee is also the owner.

Another red flag that could signal an alter-ego situation is the owner not having a separate bank account for the business. Not following corporate formalities, such as failing to hold regular board meetings or file required documents, also works against the business owner. Inadequate capitalization of the company can also be used to demonstrate the alter ego component.

Improper Purpose or Conduct

After it is established that a corporation or LLC is merely an alter ego of the owner, the plaintiff must show that the owner acted improperly. This is typically more difficult than satisfying the alter-ego component. One way that plaintiffs can show that is by proving that the company was formed for some ulterior purpose and not to make money for shareholders. Misleading shareholders and creditors can also help establish improper conduct on the part of owners.

Forming an LLC or Corporation is the First Step

Deciding to incorporate your business can be an important way to grow the company while providing you with increased protections. Simply starting an LLC, though, isn’t enough to warrant those protections. You have to maintain the company and fulfill certain obligations to ensure your LLC is actually working for you. Trembly Law Firm can help you get there. Call us at (305) 985-4573 to see what we can do for you

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