How I Help: Startups with Partners

In my last post I mentioned Sam, who is starting a new tutoring business and was not sure if he needed an LLC or if he could operate as a sole proprietorship.

During our conversation I learned that he is considering starting his company with another person. In that case, forming a legal entity like an LLC is almost a given.

With a partnership, Sam would have liability exposure for his partner’s actions. An LLC provides liability protection for each of them. Also, an LLC operating agreement that documents the relationship is crucial to get the relationship off to a good start.

What I do is explain the pros and cons of different legal entities and make sure the company is formed properly. I also create a custom operating agreement that will serve for many years to come.

If you’re thinking of starting a new business with a partner, get your business prenup done while everyone is still friends. Thoughtful planning at the front end makes it much easier to resolve differences and even unwind the relationship if necessary.