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How To Avoid Legal Pitfalls in Starting Your Own Business Partnership

In your business life, no matter who you are, you will make mistakes at some point. Unfortunately, the law is not very forgiving, because when it comes to business, ignorance is not a defence. Here are some of the common pitfalls that business owners find themselves dealing with when they set up their own businesses.

A partnership is formed when two or more parties form to start a business. The two parties come together because they generally figure that sharing the workload and investing capital together can help to get the business moving along more quickly. It is the opinion of TheLegalEagles that this type of business structure is the weakest and most potentially legally complicated type of business structure. However, if you do decide to form a partnership, it really is necessary to have a written partnership agreement, and get it checked by an attorney. If you can't afford an attorney, or if you would like to get affordable access to ongoing legal counsel, we recommend that you take a look at a legal plan. At the very least, you should have your business partnership reviewed by a solicitor. If you do not have a patrnership that is backed up by the proper paperwork, the partnership will be governed by the rules of the Partnership Act 1890. These rules may not always seem fair, and if you're running a technology-related business, they may not even seem to apply to your business.

For example, under the Partnership Act 1890, partners can simply end the partnership without giving any notice whatsoever. For you, as their pertner, this could mean that the person you're in business with is going to ask for the immediate return of their capital investment. Many businesses have been forced to close down as a result of this provision of the Partnership act. If you do not have an agreement, however, and if that agreement hasn't been legally prepared, you may be liable for costs and issues you don't even know about. Under the Partnership Act of 1890, you may be left with no legal grounds to stand on. As a result, It is crucial for you to ensure that your agreements are legal and will hold up in court if necessary.

Clarify ALL Relationships
Did you know that it's possible to be in a partnership without realizing it? An example: you run a business with somebody, but they aren't actually an employee of yours. This sort of situation often comes about between husbands and wives, or businesses where family members go into business together. Something important to consider - in a partnership, each partner is responsible for debts related to the business that are created by any of the other partners. There is no limit to the liability which you can be held up to if your business structure is a partnership.

Put Everything in Writing
You MUST have everything in writing. Having everything in writing is not just some phrase people say, or some simple idea - it is something you MUST do. It may be uncomfortable to ask a family member to sign an agreement, but it is significantly more uncomfortable, and even painful, when things go wrong. When you don't put things in writing, there is simply no legal ground for you to stand on. Without some form of documentation (which includes all correspondence), It siply becomes your word versus someone else's.

What should be in writing?
Contracts are the basis of all business relationships.
A contract will include four key components:
Consideration: an obligation to pay or a promise to provide something in return for something of value.
Certainty: the contract must clearly state what is expected of all parties.
Intention: The intention to be legally bound by the agreement,
Offer and acceptance: (Pretty self-explanatory).

Contracts can be made orally. The problem with this is that it isn't always clear when an oral contract has been made. Confirm every agreement in writing so everyone knows where they stand.
Who will pay the bills? When will they be paid? How much will you each take from the business? Are expenses included in the overall picture of profit and loss statements? Who will own copyrights for the products and services you create? It is important that all aspects are covered and that there are no gray areas.

If you still decide that you want to form a partnership, you can. By following these tips, you can ensure that your business partnership will be getting started on a solid footing.

We do recommend, however, that you look into other business structures, and get the advice of an attorney (and do it inexpensively)before making any decision that will affect your business, including deciding what kind of business to start.

Be sure to take a look at a legal plan for your business, and also be sure to check out our other articles on business tips.


Please advise me what my husband and I can do with our small business. My husband has a legal partnership with his friend. They each own 50/50 of the business. Are we responsible if he doesn't pay his bills? I am assuming we are, and I am very worried about that. I want to be free from this leach, my husband and I are struggling and can barely afford our paying our own bills, let alone his stuff. Please help me, my husband doesn't seem to be worried, but I am scared of this partnership. thankyou very much, connie.

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