Starting a business with a partner can be exciting, but it also comes with risks if the legal details aren’t handled properly. Many entrepreneurs in Alberta jump into partnerships without clear agreements in place, which can lead to costly disputes later on.
At Verhaeghe Law, our Edmonton business lawyers help new and growing companies avoid mistakes that can derail their success. If you’re thinking about starting a partnership, contact our team today for guidance before you make any legal commitments.
#1: Not Having a Written Partnership Agreement
One of the most common errors is failing to put the partnership terms in writing. Without a formal partnership agreement, the law decides how profits, losses, and responsibilities are divided. This may not reflect what you and your partner originally intended.
A well-drafted partnership agreement may cover:
- How profits and losses will be shared
- Each partner’s roles and responsibilities
- How decisions are made
- What happens if a partner leaves or the partnership dissolves
- And more
#2: Mixing Personal and Business Finances
It’s tempting to use personal accounts or credit cards to cover business expenses in the early stages of your venture, but this can create confusion and potential liability issues.
It is recommended that you open separate business bank accounts and keep clear financial records from day one. This not only protects your personal assets but also builds credibility with clients, lenders, and investors.
#3: Ignoring Liability Issues
Many entrepreneurs don’t realize that in a general partnership, each partner can be held personally responsible for the actions and debts of the other. That means if your partner signs a bad contract or takes on debt, you could be on the hook too.
Consider whether a different business structure, like a limited partnership or a corporation, might offer better protection depending on your goals.
#4: Overlooking Tax and Compliance Obligations
Partnerships must still meet tax filing and regulatory requirements. Failing to properly register your business, file taxes, or comply with employment laws can result in penalties.
A lawyer can work with your accountant to make sure your partnership is set up correctly and compliant with Alberta regulations.
#5: Not Planning for Disputes
Even the strongest partnerships can run into disagreements. Without a clear dispute resolution process in place, conflicts can drag on and damage the business. Your partnership agreement should outline how disputes will be handled–whether through mediation, arbitration, or other methods.
Planning for a Business Partnership? Contact Verhaeghe Law Today
Starting a partnership in Alberta is an exciting step, but overlooking the legal details can create serious problems down the road. With the right preparation, you can protect yourself, your partner, and your business.
At Verhaeghe Law, our Edmonton business lawyers can help you draft agreements, choose the right business structure, and avoid costly mistakes. Contact us today to schedule a consultation.