You’re probably cautious about who to bring in as a co-owner, and you might not be sure of what criteria to focus on.  Professional consultant Mary Abbajay writes in her blog about “The Partnership Paradox: How to Choose a Business Partner.”  She suggests that you first look at yourself, because this will help you identify the things you need in a business partner.  This includes examining your own goals, strengths, and weaknesses.  Abbajay then suggests a few more questions to ask, including:

      ●    Will this person be able to invest financially in your business, now and in the long term?

      ●    What types of benefits will this person likely bring (or not bring) to your business?

      ●    What kind of network does he or she have?

      ●    Does this person share your work ethic?

If you do decide to add another co-owner, make a smart decision for your business by first looking into the many legal and tax issues that can affect you.  For example, here are just a few more things that will also play a role in your decision to add a business co-owner:

 1.  The law sometimes limits co-ownership

Under California law, you can’t always bring in a new co-owner.  For example, if you’re in a professional corporation, the law generally requires that every co-owner be licensed in the profession.  Sometimes, California licensed professionals can join your business as co-owners even if their license isn’t in your specific profession (such as in a professional medical corporation).  In these very limited situations, exact legal requirements must be met.  But in most cases, only licensed professionals in your same field can be co-owners in a professional corporation. 

2. Get your agreement in writing

A written agreement is required for many businesses.  You may already have a written agreement, so make sure you follow any rules in that agreement about adding new owners.

Partnership agreements, operating agreements, and shareholder agreements are all examples of written contracts between you and the other co-owners.  This agreement is your opportunity to create a strong business relationship with your new business partner, and detail your business expectations and responsibilities. 

Never depend on vague oral agreements.  Your business is too important, and the risk of misunderstandings that can damage your business is too great.  Here are a few terms to discuss with each other and then include in your agreement:

      ●    Set out the ownership shares, purchase price to buy into the business, and the payment terms.

      ●    Decide if the new co-owner will only be an investor, or also work for the business and be paid a salary.

      ●    Clarify everyone’s rights and responsibilities in the business (including day-to-day management and decision making roles).

      ●    Agree on how profits and losses will be divided.

      ●    Create an exit strategy.  Usually, this includes a “buy-sell agreement” that’s used in case someone leaves the business later.  Without a buy-sell (or “buyout”) agreement, you could get stuck with someone you don’t want for a business partner.

3.  Look carefully at how your business is set up

There are many different business structures, and not all are created equal.  The most common business forms are:

      ●    Sole Proprietorships (a business owned by a single person),

      ●    Partnerships (including “limited” and “general” partnerships),

      ●    Limited Liability Companies (LLCs), and

      ●    Corporations (including S-chapter corporations and professional corporations).

If you decide to bring in a new co-owner, you may need to change your business structure to address the changing tax and legal issues for you and the incoming owner.  Keep in mind that your options can be limited by California law depending on the type of business you run. 

Some of these business structures provide zero protection for a business owner’s personal assets.  This means money and property in your personal name can be subject to business debts.  Business structures like LLCs and corporations can help avoid this personal liability. 

We’ll help you weigh the benefits and drawbacks of each.  In any case, don’t wait to change your business structure after it’s too late to protect your personal assets. 

Contact your lawyer at San Diego Law Firm for guidance when you expand your business’s ownership circle.  Do your part now to set things up right, because a few simple steps can often help you avoid headache and expense later.  Call San Diego Law Firm’s business lawyers at (619) 794-0243.

Bookmark This Article:

Every business needs to be evaluated on its own merits, but in his Brighthub.com blog, contributor W.A. Swan identifies seven signs that can help you decide if it’s time to exit your business.  Among the warning signs:

 - You can’t afford to advertise, which means you probably won’t be able to bring in the new business you need.

- No matter what you try, your sales are simply not improving.

 - You’ve dropped key inventory, supplies, or services offered because you can’t manage to pay for them anymore.

If you decide to close your business, remember that winding up doesn’t mean just selling your business’s assets and calling it a day.  While this may seem like a quicker way out, the potential consequences may be more costly than getting things done right the first time.  The steps for terminating your business will depend on how your business is set up, for example, is it a limited partnership, corporation, LLC, or a sole proprietorship?  To start the termination process, many businesses need to abide by the rules set out in company documents, such as your Articles of Incorporation or Organization and By-Laws.  We’ll also work to settle any disputes that arise among business partners, and advise you of your rights in termination, and in dividing assets and liabilities.

Next, you must follow all legal requirements for shutting down your business to avoid facing potentially greater liability even after you stop operating your business.  Under certain circumstances, your personal assets may become liable for business debts.  California and federal tax issues need to be evaluated early and before assets are sold, and local permits and licenses should be cancelled as well.  Protect your financial interests when closing your business by contacting San Diego Law Firm.  We’ll handle the legal steps required to close your business or sell your business.  You can then move on with greater security after you’ve exited your business, and minimize the chances of being sued or held personally liable post-closing.  Reach San Diego Law Firm’s experienced business law attorneys at (619) 794-0243.

Bookmark This Article:

On his Usabizmart.com blog, MBA Peter Siegel gives a few preparation tips for selling your business at a fair price even in a down market.  For example, instead of preparing a three year history of sales and earnings, go further back to emphasize the recovery periods after past economic downturns.  We’ll help make your business a more compelling investment by making sure your business’s legal status and permits are current, while also working to resolve any contracts, employee, or customer issues. 

Siegel also points out that corporate layoffs can mean more buyers on the market with the incentive to buy a business now.  To find prospective buyers, you can join networking and business associations, hire a business broker, and list on online marketplaces.  Entrepreneur Tom Parsley advises on the different methods for selling a business in a Streetdirectory.com article.  He suggests that if you advertise online, list with a website that charges fees based on performance and has effective search tools, otherwise interested buyers won’t be able to find your business.

Once you’ve found a potential buyer, we’ll assist with negotiations and structure the deal to minimize tax consequences and legal liability, advise you about financing options, and prepare the sales agreement and other necessary documents to fully complete the transfer.  If you’re thinking about exiting your business, contact San Diego Law Firm’s experienced business law attorneys as early as possible so we can help you successfully sell your business.  (619) 794-0243.

Bookmark This Article: