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The downsides to partnerships need to be considered carefully

by | Apr 9, 2020 | Business Litigation |

You’ve been thinking about setting up a partnership, but you know that there can be some downsides to working with others. Partnerships are one of the simplest forms of business arrangements other than sole proprietorships, so it may make sense that so many of them exist today. Unfortunately, they can have some negatives.

For instance, did you know that the members of a partnership may be exposed to liability for any actions they or their partner commit? If your partner runs up debts, both of you could be on the hook, for example.

Another negative is that you or the other partner won’t be able to transfer your stake in the company without permission. If you both disagree, this could essentially lock you into a partnership together, since the other person may refuse to work with someone new or allow you to sell your stake.

Finally, there is a risk of instability in partnerships. If you pass away, your partner gets hurt or quits or one of you files for bankruptcy, it could make your partnership very unstable. Similarly, having unclear roles can cause conflict and make your business unstable as well.

Each of these issues could be problematic, but there is good news. When you’re setting up your partnership, you can talk about these problems and get your attorneys’ input. Working together, you can build a stronger partnership to begin with, so you don’t end up with legal issues down the line. Your attorney can talk to you about choosing an appropriate legal structure for your business and making sure your partnership is clear and beneficial.