When you start a family business or business as a married couple, it’s easy to think that you don’t need a partnership agreement. These are people that you probably trust your life with, so why worry about legal agreements? The answer is far more nuanced than you may think.
As Florida business lawyers, we strongly advise you to draft a well-written partnership agreement whenever you get into business with other people.
In this guide, we’ll try to make it as easy to understand as possible.
What Is a Partnership Agreement?
In Florida, a partnership is when two or more people form a business together. No formal registration is actually required to do this (although legal regulations and obligations must be met per Florida Statute Chapter 620).
A partnership agreement is a legal document that details how the business operates. It states the responsibilities and duties of each partner, how much of the business each partner owns and the profit and loss implications of each partner.
Without a partnership agreement, partners often find themselves in disputes and confusion when changes in the business occur (even during success).
Does Our Family Business Need a Partnership Agreement?
In Florida, there is no legal obligation for you to have a partnership agreement for your family business. But it’s highly advised to prevent tensions, disputes and confusion that could risk the business’ reputation and future. It can also help keep the family’s relationships going smoothly, as a business can be rife with stress.
It’s also advised that this is drafted with the assistance of a Florida business lawyer, to prevent costly mistakes that could open the doors to litigation in the future.
Read Related: How to Start a LLC in Florida
Family Business Agreement
While you may trust your family’s loyalty, personal conflicts of interest and disputes can arise. You don’t have a crystal ball to know what will cause them, but protecting the business and one another from these disputes is wise.
A family business agreement can outline how the business will be managed, including details on what happens in disagreements, failures to uphold duties and exit plans.
When making a family business agreement you should cover:
- Roles: Detail the roles and expectations of each family member in the businesses.
- Code of Conduct: As a family, you’ll likely share the same values and beliefs. But you should put it in writing, to avoid one person acting out of line and damaging the business reputation.
- Council and Advisory Board: It can be wise to set up a family council. Which includes non-family members with an interest in the business, providing objective and outside advice.
- Ownership: How much of the business does each family member own?
- Decision Making: Is it a democracy that requires a unanimous vote? Or does one person’s vote carry extra weight?
- Capital Contribution: How much will each family member give to starting and running the family business? Is this via cash, assets or services? Is it expected to be repaid?
- Profits and Distributions: How are profits allocated and losses managed by each family member? Should partners expect to be repaid? When will they receive their distributions?
- Death and Disability: What happens if a family member dies, becomes ill or is unable to work for the business anymore?
- Withdrawal or Additions: How can someone leave the family business? How can someone new be added? And what happens if these two events occur?
Read Related: Do I Need a Lawyer to Start a Business?
Succession plans are legal agreements that outline who will become the leader of the family business when the current one retires, resigns or passes away.
Having this in place can allow for a smooth succession, with the new leader prepared for what’s to come.
It can be a difficult conversation to have as a family, but doing so will ensure the family business’ future is protected
Married Couples and Prenuptial Agreements
Prenuptial agreements can be a very difficult topic to approach with your spouse. But they can prevent nightmare scenarios, where part of the business is lost in a divorce.
A well-drafted prenuptial agreement can allow you to establish the value of the family business at the time of marriage and state how the owner should be treated should you get divorced.
Married Couples and Tenants By The Entirety
In Florida, married couples can own assets in a special type of ownership called ‘Tenants By the Entirety’.
Usually, Tenants By the Entirety are used to hold assets such as real estate. But it can also be used to own businesses.
In this agreement, the couple owns the asset together. 100%. Neither spouse owns a personal share of the asset. There is, technically, only one owner – the couple.
This type of ownership is a useful option if you want to protect the business assets from creditors. If one spouse gets sued or has a judgment against them, creditors can’t collect business assets.
If a spouse passes away, the business also becomes owned solely by the surviving spouse without passing through probate.
In Tenants By The Entirety ownership, married couples don’t need to have a partnership agreement as the assets are owned collectively. However, if another family member owns the business too then the situation changes.
Hire a Business Formation Attorney in Pinellas County and Hillsborough County
If your family is starting a family business in Florida, then our Florida business agreement lawyers can help you draft a watertight and optimized partnership agreement.
We regularly help families form businesses that comply with state and Federal regulations while forming agreements that protect everyone going forward. From drafting partnership agreements to filing applications, we’ll help you start your business on the foot.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will or trust.