Restructuring a Business When Adding a Partner
Businesses can change over time. An entity might expand to a new territory, or it might introduce a new product or service. Some changes also involve personnel, such as hiring more employees or taking on a new partner. Bringing on a new owner or partner could require changing your business structure, depending on the type of business and the specific circumstances involved.
Important Considerations When Adding a Business Partner
Bringing on a new partner may be a great move for your business, but this is a major change, so it is very important to be sure you are making the right decision. Here are some key questions to ask as you consider the addition of a business partner:
What are their strengths and weaknesses?
Take an honest look at the strengths and weaknesses of the partner you are considering to determine if they will be a good fit for your business. Ideally, a partner should possess strengths in areas where you (and the other owners) are not as strong. They should be bringing complementary skills to the table that will help enhance the business as a whole. You should also look at their personality and temperament to ensure that conflicts in this area are not as likely.
What will be their roles and responsibilities within the business?
Related to the first question, you should set out clear roles and expectations for your new partner based on their strengths and skill sets. For example, your new partner may have an extensive background in marketing, in which case this would likely be one of the areas that he/she would be responsible for.
What are your expectations from this partner?
Take a look at how you expect your business to benefit by adding a new partner. In other words, what does this person bring to the table? Perhaps it is a much-needed infusion of capital to expand operations. Or maybe it is a skill set that has been lacking, such as expertise in marketing, finance, or managing employees.
Are their interests aligned with yours?
One of the major reasons that business partnerships fail is that the partners do not share the same goals and vision. Maybe you want the skills or the capital that this partner is bringing into the business, but if you do not see eye to eye on where you want the company to be long-term, then this person may not be a great fit. It is best to have an honest conversation with them and find this out ahead of time before you make a big commitment to this person.
Ways You May Need to Restructure Your Business after Bringing on a Partner
- Modifying Ownership Interests
When you bring on a new partner, they are likely to want some type of ownership interest in the business. For this to happen, the ownership stake that is held by you (and other partners if there are any) will need to decrease. If there is a partner who is leaving at the same time that you are bringing someone new into the business, this might be as simple as the outgoing partner selling his/her ownership interest to the incoming partner. If, however, a new partner is being added and there are no other ownership changes, then you will need to discuss with your attorney how to properly go about modifying ownership interests.
- Changing the Entity Structure of the Business
Bringing on a new partner could necessitate a change in the legal entity structure of the business. For example, if you are currently the sole owner of the business, you might be operating as a sole proprietorship. With the addition of a partner, it might make sense to restructure the business as a partnership or possibly a limited liability company (LLC) depending on your circumstances. A restructuring will involve drafting and filing the appropriate documents while diligently following all of the applicable rules and regulations. You will also need to examine the tax consequences that may result from this type of change.
- Purchasing Or Selling Assets
Depending on the type of business you are in, it might be necessary to purchase or sell various assets at the time you bring on a new partner. For example, the addition of a new partner could coincide with the opening of a new office and the expansion of business operations. As such, the company may need to purchase certain assets to get the new office up and running.
Southern Alabama Business Law Attorneys Can Help with Your Partnership Needs
If your business is bringing on a new partner and/or you are making any other significant changes, contact Stone Crosby, P.C. for the strong legal guidance you need. To get started, message us online or call our Daphne, AL office today at (251) 626-6696. We are ready to go to work for you!
