You Are Here: Home > Articles > Working Relationships > Article

 

Internet PartnershipsóDon't Throw Away Your Business

by Richard Chapo, Esq.

General partnerships are a poor business entity choice when it comes to pursuing business activities. They fail to provide the asset protection shield that should always be put between your business activities and personal assets. Many small businesses, however, find it profitable to combine their product or services with other small businesses. In doing so, they often fail to realize that they are subjecting them to the same exposure as a general partnership.

Why Even Worry About It?

You put a lot of time, money and sweat into your business. After years of effort, you have it fine-tuned and are making a nice living. How willing are you to lose your business?

Consider the following hypothetical situation involving two sole proprietors. Our first party, Programmer, creates computer programs for managing websites. The second party is Mark, the owner of a site that provides small businesses with websites. Programmer and Mark come to the conclusion that they can make big money by opening a joint site. This type of situation occurs every day on the Internet. How should they do it?

The best option is to form a corporation or LLC. Each party will own an agreed upon percentage of the company. Mark will contribute his marketing ability while Programmer contributes software platforms. The bylaws (administrative rules) of the corporation will detail how profits are divided as well as detailing who gets what (domain name, client list...) if the relationship doesn't work out. If a corporation or LLC is not formed, each party exposes their individual businesses to liability just as would occur in a general partnership.

What has been accomplished? Mark and Programmer are protected from liability arising from the new business. If the company fails or is sued because of problems with the software, Mark and Programmer will avoid personal liability and their original businesses are not touched. Are they completely protected? NO!

Mark and Programmer are still open to liability on the "back end". Without realizing it, each trusts the other to properly run their independent businesses. Why is this?

Assume that Mark and Programmer follow the above plan and the business is very profitable. One day, Programmer is served with a lawsuit claiming that he violated copyright laws with a program that he developed before meeting Mark. The nine companies to which he sold the program also sue him. The trial goes badly and Programmer is found liable to the tune of $750,000.

Guess what happens next? Since he is a sole proprietor, Programmer's interest in the joint business with Mark is seized to satisfy the judgment. Alternatively, he files personal bankruptcy. Either way, Mark is involuntarily going to have a new business partner that probably can't program! In short, we are talking about a disaster.

How To Protect Yourself

Business entities are the key to limiting your exposure to liability. In the above situation, Mark and Programmer should own the joint company as individuals, but they should form business entities for their personal businesses. If the personal businesses are sued, their individual ownership of the joint venture entity is shielded from attachment.

As a general rule, you should form an individual business entity for each business you own. By doing so, you are better able to limit the potential damage of a lawsuit involving one of the businesses.

Richard Chapo, Esq., is with San Diego Business Law Firm offering business law advice to California businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.

 

Share this article:

TwitCount Button


comments powered by Disqus

Get free news, updates, strategies and special offers from Internet Mastery Center delivered to your inbox. Simply fill in your name and e-mail address to download your FREE e-book in the right sidebar. It only takes a MINUTE!   For top stories in Internet Marketing, follow us on Twitter at @webmastery.

Recommendations

Passive Profit Breakthrough

Passive Profit Breakthrough

Discover how to make your first $10,000 dollars per month and beyond with list building, e-mail marketing and affiliate marketing.

Speed Wealth

Speed Wealth

Discover the secret hacks and tricks used to generate no-cost laser-targeted traffic and generate $100+/day in ANY NICHE!

Latest Blog Posts

For more Internet Marketing updates >>

 

Monday, 18 Dec 2017 12:16 AM

Loading

Download your FREE report on social networking/bookmarking.

Monetizing Secrets Of Going Web-SocialInside this 92-page report is a social media marketing blueprint proven to generate more traffic and leads with the latest Web 2.0 strategies. It focuses on 2 hot aspects of Web 2.0: social networking and content propagation. It also suggests resource links to Web 2.0 scripts and tools and how you can employ Internet Marketing techniques to convert visitors from social networking sites.

Subscribe Now...It's FREE!

Connect With Nelson At:

          

Blog Profits Blueprint

Hosted By Web Hosting by iPage

Submit Your Links


Internet Mastery Center has been providing Internet Marketing expertise since December 2003. Its mission is to ensure every aspiring marketer is well equipped with all the necessary Internet Marketing know-how and programs.
Copyright © Internet Mastery Center. All rights reserved.   
Anti-Spam Policy | Terms Of Use | Privacy Policy | Affiliate Agreement | Site Map