| General partnerships are a poor business entity choice | | | | business. If the company fails or is sued because of |
| when it comes to pursuing business activities. They fail | | | | problems with the software, Mark and Programmer will |
| to provide the asset protection shield that should | | | | avoid personal liability and their original businesses are |
| always be put between your business activities and | | | | not touched. Are they completely protected? NO! |
| personal assets. Many small businesses, however, find | | | | Mark and Programmer are still open to liability on the |
| it profitable to combine their product or services with | | | | "back end". Without realizing it, each trusts the other to |
| other small businesses. In doing so, they often fail to | | | | properly run their independent businesses. Why is this? |
| realize that they are subjecting them to the same | | | | Assume that Mark and Programmer follow the above |
| exposure as a general partnership. | | | | plan and the business is very profitable. One day, |
| Why Even Worry About It? | | | | Programmer is served with a lawsuit claiming that he |
| You put a lot of time, money and sweat into your | | | | violated copyright laws with a program that he |
| business. After years of effort, you have it fine-tuned | | | | developed before meeting Mark. The nine companies |
| and are making a nice living. How willing are you to | | | | to which he sold the program also sue him. The trial |
| lose your business? | | | | goes badly and Programmer is found liable to the tune |
| Consider the following hypothetical situation involving | | | | of $750,000. |
| two sole proprietors. Our first party, Programmer, | | | | Guess what happens next? Since he is a sole |
| creates computer programs for managing websites. | | | | proprietor, Programmer's interest in the joint business |
| The second party is Mark, the owner of a site that | | | | with Mark is seized to satisfy the judgment. |
| provides small businesses with websites. Programmer | | | | Alternatively, he files personal bankruptcy. Either way, |
| and Mark come to the conclusion that they can make | | | | Mark is involuntarily going to have a new business |
| big money by opening a joint site. This type of situation | | | | partner that probably can't program! In short, we are |
| occurs every day on the Internet. How should they do | | | | talking about a disaster. |
| it? | | | | How To Protect Yourself |
| The best option is to form a corporation or LLC. Each | | | | Business entities are the key to limiting your exposure |
| party will own an agreed upon percentage of the | | | | to liability. In the above situation, Mark and Programmer |
| company. Mark will contribute his marketing ability while | | | | should own the joint company as individuals, but they |
| Programmer contributes software platforms. The | | | | should form business entities for their personal |
| bylaws [administrative rules] of the corporation will | | | | businesses. If the personal businesses are sued, their |
| detail how profits are divided as well as detailing who | | | | individual ownership of the joint venture entity is |
| gets what [domain name, client list] if the relationship | | | | shielded from attachment. |
| doesn't work out. If a corporation or LLC is not formed, | | | | As a general rule, you should form an individual |
| each party exposes their individual businesses to liability | | | | business entity for each business you own. By doing |
| just as would occur in a general partnership. | | | | so, you are better able to limit the potential damage of |
| What has been accomplished? Mark and Programmer | | | | a lawsuit involving one of the businesses. |
| are protected from liability arising from the new | | | | |