Forming a Business Partnership in California

If you are going into business with a colleague, forming a business partnership can be a great option. Your business partner might provide capital and/or other contributions, plus you can work together to execute your joint vision for your business. Legally speaking, a partnership involves two or more persons carrying on a business for profit. The partnership is not a separately taxed entity, but rather, a conduit where the profit or losses of the partnership flow through to the partners” and a written partnership agreement is recommended, which an experienced business attorney can help you draft. A thoughtfully prepared agreement can head off conflicts before they start because the partners know what is expected of them.

Presumably, both partners hope their partnerships will proceed without incident, but in many cases, disputes are inevitable. Resolving a partnership dispute does not have to require resorting to litigation. Indeed, the first way to resolve a dispute is to review the written partnership agreement.

At a basic level, the agreement needs to be enforceable. It should contain a “bargained-for exchange”. That is, the agreement should state what each partner will give and receive as part of the partnership. The agreement should also be executed by both parties. Further, a partnership agreement should state the contributions and expected responsibilities of each partner. The if_finance_-57_739064agreement should also include provisions for resolving disputes and for dissolving the partnership.

If the agreement does not provide a helpful basis for resolving the dispute, some attorneys recommend looking at additional documents, such as emails, employment agreements, and other notes that are contemporaneous with the partnership agreement or show a pattern and practice of certain behaviors and expectations. These are documents a judge or mediator might want to see eventually if the partners cannot reach an informal resolution, so it pays to collect them early. The documents can serve as evidence of the partners’ intent when they made their agreement.

If these additional documents do not solve the problem, mediation or arbitration is always an option. A reparative alternative dispute resolution mechanism allows the partners to continue working together after they resolve the dispute. Mediation in particular emphasizes giving each party a chance to be heard and working out a solution both parties can live with. Litigation—filing a lawsuit in state or federal court—is also an option, although cost can be a consideration. Still, many parties are interested in the finality of a court judgment and therefore choose this route.

For more information on how to form a business partnership, contact the experienced business attorneys at Dennis Law Group today.