Chapter 23
Ten Questions to Answer Before Considering a Partnership Agreement
In This Chapter
Discovering why partnership agreements are important
Finding out how the structure of a partnership can affect its valuation
Understanding the role of intangible assets and intellectual property
Looking at the pluses and minuses of partnership agreements
Planning for future disputes
Partnerships are unincorporated businesses in which two or more individuals manage the business and are equally liable for its debts (see Part IV for details). You can find variations on the level of liability based on the legal definition of the partnership. Partnerships are a particularly interesting valuation challenge because they typically don’t have many hard assets to value. In fact, a lot of partnership value is intrinsic — it’s tied up in the skills of the individuals who form the partnership. Individuals may change their legal business status from a partnership to another designation over time — becoming a corporation or a limited liability company (LLC), for instance — when the purpose or sheer size of the business changes.
But even in the earliest stages, partnerships shouldn’t be informal arrangements between individuals, even if they’re siblings, spouses, or close friends. As with any business contract, partnership agreements aren’t written for the good times; they’re written for the bad times — or at least, for times of big change for the business, which can be positive or negative.
Why put ...
