Thursday, February 7, 2008

Starting A Business With Your Significant Other published an article, Business partners in love Before you and your spouse start a joint venture, protect your finances - and your relationship, on starting a business with one's spouse. I think the article applies to anyone that starts a business. However, I think the articles muddles a bit of the legal issues.

I have a problem with the following paragraph:

You'll also need two legal documents. The first, a partnership agreement, should outline job responsibilities, the amount of profits each of you will take and how you'll handle disputes. Also consider spelling out which of you would have veto power in case you've completely locked horns. The second, a buy-sell agreement, is like a business prenuptial. It should say whether one of you would buy out the other and who would inherit the company in the event of divorce, disability or death.

Tell a lawyer you want a partnership agreement and you will hear about the problems of a partnership (like I do in my post here). So forget the technical partnership (the article does, see below), and go with a corporation or a limited liability company (LLC).

Putting all of information described above into corporation bylaws or a LLC operating agreement (see my article here on LLC operating agreements) might raise problems if additional shareholders or LLC members get added to the business. The corporate bylaws or LLC operating agreement should include the division of profits and how to handle disputes. Instead of an ordinary partnership agreement use a post-nuptial agreement (if married) or a cohabitation agreement (if unmarried) for outlining the job responsibilities.

The buy-sell agreement causes my second problem: this must be in the corporation by-laws or the LLC operating agreement. Again, what happens if the business adds more owners?

Here the article leaves partnerships behind and mentions now " a corporate structure such as an LLC."
Finally, make sure that if your business falters, your family's assets aren't on the line. Talk to an accountant about setting up a corporate structure such as an LLC, which will help shield your personal property from creditors if your company fails. Having separate bank accounts and credit cards for home and work will reduce the chance that the IRS will look at your home records if you're audited. Plus, it'll help you keep track of business expenses and income.
I had several problems with this paragraph. First, I do not think that choosing a proper business entity for the business should be the last thing. Protecting your personal assets ought to come just after coming up with the business idea. Second, get a lawyer and an accountant - the former for legal issues (like setting up a corporate structure) and the latter for taxes. (For more on this see my post here). Otherwise, a good starting point for starting a business with your spouse or boyfriend or girlfriend. When you finish reading this article, come back here and read my posts under the subject of "start ups". Then give me a call when you need an attorney for your business.