Dinn, Hochman & Potter, L.L.C.
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New business partner agreements

It is important for Ohio entrepreneurs to take care of legal matters when forming a new business. Many start-ups fail to have in place basic legal documentation outlining each founder's role in the business. Many times, this is because the owners would rather spend the company's money on products and advertising rather than on legal matters. However, businesses that have legal documentation in place that gives a blueprint for what will happen if major changes take place or the company shuts down tend to be more successful than those that do not.

Legal agreements should be negotiated early in business's life. If there is a lack of clarity with regard to an individual's role in the company or the value of any ownership they may have, then unexpected surprises may lead to unpleasant legal disputes. Additionally, sourcing external financing will be easier with legal agreements in place since venture capitalists will look at these agreements before becoming an investor. Legal agreements are even more important when a business's products are strongly tied to intellectual property.

When most businesses start, liability, assets and profits are all shared equally among the owners. However, there are other common structures for a company, such as limited partnerships. That arrangement involves partners that put forth financing but have little liability, and partners that do most of the decision making and carry most of the liability. Limited liability companies are another yp that creates a separate entity, shielding owners from liability. C corporations are entities with their own liability and tax obligations, and S corporations are like C corporations, but the investors are responsible for tax obligations.

Working with a business law attorney during business formation may help owners navigate the complexities of business partner agreements. In addition, a lawyer could help inform business owners of the different types of business structures.

Source: Entrepreneur.com, "Bringing on a Business Partner? Avoid This Common Mistake", Ann C. Logue, October 14, 2014

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5910 Landerbrook Drive, Suite 200
Cleveland, OH 44124
-6500

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