Effective Real Estate Investing Partnership...

What to do if you don't have an agreement in place (when you know that you really should)

By Peter Conti, www.resultsnow.com

The number one reason most people hesitate to get things in writing is that they worry about upsetting their partner. Imagine if you had been married for two years and your partner now suddenly wants you to create and sign a pre-nuptial agreement. While that could be unsettling, having a written agreement to cover the business that you do is so widely accepted that the only thing anyone could ever be embarrassed about is NOT having an agreement in place.

Here's a checklist to help you in putting together your partnership agreements. You may have already done some of these things... that's good. If something is listed here, make sure that as a partner in the business you have a copy for your own files. Part of being responsible is making sure that you can put your hands on important paperwork, no matter where or what your partner(s) are doing.

  1. Name of the business -- Try to pick something out that does NOT include your own name if possible. This makes selling the business someday much easier.
  2. Names of the principles -- Who is going to own and work in the business?
  3. Type of entity -- Are you going to use an LLC, a corporation, or a limited partnership?
  4. Partner's contributions -- this includes any initial capital along with listing out the value that each partner brings to the partnership. This value could be in the form of connections, prior relationships that can be leveraged, systems that have been developed, or expertise/knowledge about the business at hand.
  5. Business operating agreement -- this is the document that sets forth the rules and guidelines for the entity you've created. Different from the partnership agreement, this document is often created by the attorney who created the entity for you.
  6. Bank account/financial -- who is going to sign checks, where will the business have accounts, how much capital will be kept on hand, is the partnership going to need a merchant account to accept credit cards, when and how will profits be paid out?
  7. Financial controls -- How will each partner be able to know that expenses are reasonable and necessary for the business? What systems will be put in place to ensure that all income is deposited properly? Is one partner or two going to need to sign checks. How often will bills be paid and who will approve them? How often will financial statements be made available to the partners.
  8. The partnership agreement -- This spells out everything from the creation, the purpose, the 5 "D's" What to do in the event of Death, Disagreement, Debt, Divorce, or Disability. It also can set limits on who can authorize expenses and the amounts, how many partners are required to make major decisions, and usually limits a partner to selling their interest by giving a first right of refusal to the other partners.
  9. Initial expectations from the partners -- who's going to do what. Keep in mind that this will be constantly changing. In six months the needs of the business might be very different either due to growth or as a result of a decision to focus in a different direction based on the partnership's experiences in the marketplace.

--Peter Conti,
Guest writer for The Experts

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
  • Allowed HTML tags: <a> <em> <strong> <p> <br>
Please prove you're not a bot.
Enter the characters shown in the image.