In this video, Gunster business litigator Linda Conahan explains that business partnerships can be formed by oral agreement, and how decision-making rights and responsibilities make it somewhat like a marriage.
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Video produced by TheLaw.TV
Florida litigator on the perils of business partnerships
You may not know it, but if you’ve agreed to go into business with another person, you may already be running a general partnership.
That’s because partnerships are the only business entities that can be formed by oral agreement.
And once you’re in it, a partnership is like a marriage – partners have equal ownership and decision-making rights and responsibilities. For example:
- General partners are liable for the business activities of each other. If your partner skips town, you’ll be liable for all the debts, not just half of them.
- Profits are shared equally unless you agree otherwise.
- Partners owe fiduciary duties to one another: loyalty, honesty, and not acting in his or her own self-interest.
Even if you go into business with a family member or your best friend, it’s a smart idea to create a written agreement that spells out each partner’s rights and responsibilities, including:
- How decisions will be made
- How nonmonetary contributions are to be valued
- What happens if one partner leaves the business