Are you thinking about forming a partnership?
It could be a great idea, but first check through this list to make sure you have the big and little items figured out first. Print out this list, read the questions, and write your answers. Having outlined your partnership agreement will really help when a partner is ready to exit, especially if there is conflict.
1. What will you name your partnership? Make sure you get appropriate Trademark protection.
2. What is your business purpose? Define it for strategic, and taxation purposes.
3. What kind of equipment do you need? Make sure you have a comparable business to look at.
4. Think about capital questions like: (i) how much cash are you putting in; (ii) how much operation capital is needed; (iii) will additional contributions in future be needed?
5. What are the skills and experience of each partner, and what value does it bring?
6. Transfer of property - are you doing this by contract: (i) Existing business? Are these properties to be transferred; (ii) Bulk Sales Law--Notice necessary?
7. Assignment of Licenses: (i) Licenses; (ii) Insurance policies; (iii) Any new licenses required
8. Will partnership take title to real property (buildings or land)?
9. Will there be assumption of liabilities by new partnership?
10. Do you have any inventions or trade secrets: If so, you need appropriate assignment, or a licensing agreement.
11. Think about potential taxes and insurance costs: (a) Sales Tax Permit; (b) Unemployment Insurance; (c) Withholding tax?
12. If a leases or franchise is being transferred, have you reviewed the contract to determine if consent is needed to transfer be obtained?
13. Is there a Fictitious Name Statute [called an "assumed name" in NY]?
14. Where will your place of business be?
15. What is the term of the partnership, and will the partnership terminate at will?
16. Are any of the Partners involved in legal proceedings or domestic difficulties which would prejudice the Partnership relations?
17. What is each partners right to specific partnership properties. E.g. what is not community property: Will a spouse's consent to a specific transfer be necessary?
18. Think about Salaries--Expense; previous interest on advances or undrawn profits; minimum return; will profits and losses be according to capital contributions? Also, drawing accounts or salaries: How much; Payable when; Salaries allowed if a loss?
19. Management: (a) Who are managing partners and what are their duties; (b) How are changes in salaries or drawing accounts to be made; (c) How are checks to be signed?
20. What are the risks that should be covered by insurance: Fire & theft; Life?
21. Will all the partners devote full time?
22. Settlement of disputes: By majority of partners? Each one vote?
23. What acts are prohibited without consent? (e.g., acting as accommodation parties, sureties, going into debt, lending firm money, selling, mortgaging or pledging firm property? Discharging employees, closing a firm transaction over a certain sum of money). Partners prohibited from encumbering or disposing of any of their interest in partnership property?
24. What if you need to expel of a partner: Disability--How long; Disabled partners have right to continue salary or drawing account; Insurance by firm on the financial drain covered by illness of a partner?
25. What happens upon withdrawal. Does a partner give notice? If partnership is at will, what advance notice required: Covenant against competing; or using firm secrets?
26. Definitely include: Valuation of interest. Partners jointly or as individuals have option to purchase interest of a deceased or retiring partner: (b) How will you determine value? (i) Book value; (ii) Formula--Capital account + or - his share of individual profits or losses at date of death or retirement; (iii) By appraisers; (iv) By C.P.A.; (v) Is goodwill to be considered? If so, on what basis; (vi) How paid? (Cash, installment payments, security, promissory note, life insurance on other partner?
27. How will the Retention of funds work: is interest of deceased partner to be purchased or retired; Is estate of deceased partner to continue to participate in profits? How long; Estate to bear equitable share of losses; In what proportion do remaining partners get to divide interest of a deceased or retiring partner;
28. What will happen if you engage new partners? Add Provision for admission of new partners? If so, with consent of all partners, or upon what conditions?
29. How does Dissolution Happen: (i) Death of partner; (ii) Bankruptcy of partner; (iii) Adjudication of incompetence; (iv) Incapacity or disability; (v) Withdrawal or expulsion of a partner?
30. Liquidation. Which partner acts as liquidator? Salary? Does any partner with the return of any specific partnership profits?