A partnership is like a marriage, in that it can be very rewarding, delicate, and financially and emotionally draining to get out of. If you are a part owner of a limited liability company (LLC) or corporation, you at least have the benefit of liability protection should one of your partners hurt someone or create financial obligations without your permission. Partnerships without a LLC or corporation have no such protections.
If your partnership lacks the appropriate documents for that partnership, you are relying on state law to dictate how the company should be run and what rights you and your respective partners / co-owners can rely on. Do you know what they are? Consequently, it’s critical to properly form a company, with the right organizational structure and paperwork. Similarly, if it’s too late for that and you’re already in some sort of dispute regarding the partnership — whether you have the right paperwork or not — utilizing experienced and dedicated business attorneys can really make the difference between an effective dispute and being railroaded right out of the company you formed or help to build.
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What are the Right Documents for Different Types of Partnerships and Companies?
Each type of company (or partnership) utilizes unique documents to define the structure, management style and agreement between the owners. For example:
- Corporation. Corporations, whether C-Corporation or S-Corporation, require at least “Articles of Incorporation” and Bylaws. While not required, it is helpful to have a shareholder agreement and a buy-sell agreement.
- Limited Liability Company (LLC). LLC’s require at least “Articles of Organization” and an Operating Agreement. The Operating Agreement is a very flexible document, and can act like a “partnership agreement” between two or more partners.
- Partnership. Partnerships require a Partnership Agreement. Beware, however, that even without a Partnership Agreement, you could have “de facto partnership” that can expose the participants to legal liability from third-parties for the harms committed by the other partners.
In all instances, no matter what type of entity or structure you have, such structures could benefit by implementing additional agreements, depending on the circumstances and needs of the business. Examples include restriction agreement, investors’ rights agreement, inventions and confidentiality agreement and more.
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