Legal Question in Business Law in Colorado

Partnership preparation - accountabilites

My partner and I have co-developed a new product and we are preparing to establish a company and go to market. Based on recent experience, I'm deeply concerned that my partner is unable to carry their share of the workload. We've discussed my concerns openly and I've suggested we draw up a chart of accountabilities outlining our respective obligations to the company. Is there a standard form for this? How is it enforced or justified ( I say I did 90% of the work but can't prove it )? I've suggested my partner take the stance of an investor and expect something less than 50% equity based on less involvement in the busines but I have not been successful. My partner maintains the position of understanding a need for fairness but refuses to back away from 50% ownership and still hasn't anted up. I don't want to enter a situation where I'm doing all the work and giving away half to a non-active partner. What should I do?


Asked on 12/28/06, 7:21 pm

2 Answers from Attorneys

Robert Murillo Pivotal Legal Ltd.

Re: Partnership preparation - accountability

Morning,

Congratulations on your new venture. I wish you the best. Towards that end, your venture needs to start with a solid agreement between the parties or you are just asking for considerable and very expensive legal issues down the road.

First off, you need to consider the entity form for the venture. There are partnerships, limited liability partnerships, limited partnerships, limited liability limited partnerships, limited liability companies and corporations. Which one to select depends on your goals, your business, the parties and the taxation benefits. Talk to your accountant or an attorney about which one is best for your venture.

Once you have determined the entity form, you need to have an appropriate agreement. It could be a partnership agreement, operating agreement or shareholders agreement depending on your entity. This agreement is where you agree to management terms, economic matters (distributions, investment), dispute resolution, scope, dissolution and so on.

This agreement establishes the rules between the parties and is a binding contract that can be enforced in court or through alternative dispute resolution (mediation, arbitration, if provided in the agreement).

I would not go any further until you have come to a written agreement as I described. The time and money you spend doing this now will save you considerable headaches and expense down the road. Good luck.

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Answered on 12/29/06, 10:20 am
Alan Crone Crone & McEvoy, PLC

Re: Partnership preparation - accountabilites

This is a very common problem. The best way to handle it is to draft a partnership agreement on the front end detailing each partner's equity percentages and responsibilities. For your sake assume the worst case scenario for his participation and give him what you think his contributions to date (service, intellectual property and financially). Keep in mind that capital contributions will dominate over work/service to the partnership if the case ever goes to court in a dispute over percentages. Do not hire one lawyer to repesent both of you. You need to have your own attorney to look out for you. If this business is going to be successfull plan for than now by spending some money to make sure you have a good custom agreement to govern your partnership. A good partnership agreement can eliminate costly disputes down the road. Good luck.

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Answered on 12/29/06, 12:30 pm


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