sole trader going into business with someone else

Discussion in 'Growing and Managing a Business' started by snail, Sep 30, 2011.

  1. snail

    snail
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    Bit of legal/tax advice needed... I am planning to go into business with someone. She is currently running a small business as a sole trader. The question is how do we structure ourselves to work together. Can we be 2 x sole traders operating as the same company name and using the same bank account. Or do we need to become a partnership or Ltd Co? Thanks
     
  2. ArcSine

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    This is one for which the only reliable, definitive answer on which you could hang your hat is the one coming from your attorney, esp. one who's familiar with the laws that govern in your particular area.

    In the meantime, here's a layman's guess: By operating with the same company name, same bank account (and a bunch of other "sames" that it sounds like would be involved), you're broadcasting a message that the two of you are indeed a partnership; and further, it's a message that all parties you deal with are legally allowed to rely upon, UNLESS you go to some extreme measure of stamping "WE ARE NOT PARTNERS!" on every document, invoice, memo, email, check, voice mail message.....

    Then, in the event of a legal claim against the "company", you wouldn't be allowed to assert that you are independent sole props, neither one responsible for the liabilities of the other. In other words, all this "sameness" in your operations creates a de facto partnership, thereby exposing each of you to claims against the other. The parties with whom you deal (customers, vendors, lenders, banks, landlord, ...) will have made business decisions based in part on a reasonable assumption and reliance that they're dealing with a valid partnership. For their protection, a court would impose on the two of you the same responsibilities as you'd have under a bona fide partnership.

    So if all the "sames" are important, might be best to go ahead with creating a valid partnership (or corporation, or whatever). That would put all the appropriate documents in place (partnership agreement, shareholders' agreement, etc.) so that all future questions are answered in advance, and the rights and responsibilities of both partners are carefully spelled out in detail.

    And I must repeat: the foregoing was merely a non-attorney guess. Best of luck with it!
     
  3. BusinessKickoff

    BusinessKickoff
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    Agree agree agree agree a million times with ArcSine!

    Consult your attorney. If you do not have an attorney, GET ONE!

    There are so many legal issues with owning and running a business, not to mention partnership issues! You really need an attorney that understands business and all the legalities that go with it. You definitely need some sort of partnership structure agreement if you are sharing bank accounts. There are so many "what ifs" that could be brought up that I cannot even address it all. Get some sort of business mentor that has experience with the partnership process and, most importantly....

    ...consult your attorney and set up a LEGAL business partnership!

    No joke, you will thank yourself that you did!
     
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  4. LFinkle

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    Partnerships are perhaps one of the most difficult relationships to have. I agree whole heartedly that one consideration is to find an attorney and set up a legal business partnership agreement. I work a lot with partnerships and even those that have these agreements often have challenges as the business changes.
     
  5. parkersharon32

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    I agree, you definitely need to talk to a business attorney. That should always be your first step when contemplating a new business. Good luck!
     
  6. Plumbing007

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