How to do a partnership 1

[jay156]

A client from a previous job approached me last week with a new project. He has a firefighter training structure that he wants to sell plans for online and would like me to draw up the plans. He suggested that perhaps we could be partners in the endeavor as opposed to the usual model of me charging for the time to draw up the plans. I told him I wanted to go with the traditional method, but now I'm thinking that it's just a small job anyway, but if this takes off, it might be more beneficial to be a partner.

My question is how do I do a partnership? How do I make sure they're not raking it in hand over fist but telling me, "Oh, sorry, we haven't sold a single one." Should we get a lawyer or use legalzoom and form an LLP or something? I'm not sure there aren't a whole bunch of other issues I haven't even imagined. This is all totally foreign to me, so any help is appreciated.

 

[Ron]

Setting up a specific business entity for a finite project/product is often more tricky than setting up a permanent business. I would suggest that you consult an attorney. In the agreement, be sure to get a provision that all principals of the entity be provided an AUDITED financial statement on, at most, an annual basis.

As for the structure of the entity, it could be a straight partnership, a limited liability partnership (LLP), a limited liability company (LLC) or a variety of other structures (even a joint venture). Just be sure that you fully understand your liability, your recourse in the event something goes wrong (plan for the divorce!), and your split of the proceeds.

Also, insist on insurance that covers both your professional liability and general liability, and that the insurance cannot be dropped for the entire life of the entity without mutual agreement. Keep in mind that professional liability carriers frown upon projects where the design engineer has a stake in the profits.

Good luck.

 

[MiketheEngineer]

J -

You are asking a bunch of legal/accounting questions of lawyers.

Suggest you find a GOOD lawyer and probably a GOOD accountant.

Any answer can/could have long term ramifications which you may/may not want.

Good Luck

 

[RacingAZ]

Agree with the above posts.

Are you a PE and in how many States? What happens when you can't seal the plans because you're not licensed in a particular State where he sold a unit?

Is this one of those structures made out of shipping containers? I had one approached me a while back and just wanted the cheapest fee possible to get his building permit. No thanks for me.

The traditional method may be the way to go, just don't expect the big bucks due to the competition. Also, it's not like there's an unlimited number of customers for the product. The number of fire departments throughout the US may be a lot, but it's a finite one and most of them share training facilities (if they are in the same area).

 

[ajack1]

With the limited amount of information given I would say it is impossible to offer sound advice.

However if you like the idea of the high risk verses reward and having to negotiate everything based on research, the advice of other people and your own gut feelings then you are probably the right sort of person to enter into a partnership or set up an independent business and as long as you have a good product and make good judgements you may well succeed.

If on the other hand it scares you and you just want the highest and quickest return possible you are better staying as a hired hand.

 

[abusementpark]

What kind of ship doesn't float??

A partnership.

 

[DoTheMath]

The stats vary but about 80% of new businesses fail within 5 years. So, along with the allure of a chunk of the profits, you really want to make sure you've considered what happens should those profits turn to losses.

There are few things more exciting than a growing business. Few things more challenging and rewarding than making a business partnership work. And few things more painful than a failing business and a failing partnership.

If you're talking to a lawyer you might want to talk about options to do a split of revenues "off the top" instead of a partnership where you're sharing P&L.

B. Charlton

http://www.briencharlton.com

 

[RDK]

Get some legal advice. Partnerships can be very tricky as any unlimited partner (the default type) can be held individually responsible for the debts and actions of another partner.

If your partner does not have any assets that a claimant can attach, then they can legally come after you for his actions in the name of the partnership, even those you did not have any knowledge about.

Perhaps you might be better off in a fee for service arrangement where the fee is not a direct hourly compensation but a percentage of the sales or profits.


Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[SAITAETGrad]

An ideal model for many engineering firms would be a limited partnership but how do you set up an LLP in areas where only lawyers officially can form such a business? Does anybody use a round-about way of accomplishing the same thing?

 

[MikeMech]

Most partnerships I have witnessed ended badly. If you proceed, make sure both parties are clear about division of responsibilities and rewards. But regardless of any agreement you may sign, if one partner thinks the other is not pulling his weight the partnership will get quite uncomfortable.

No written agreement can foresee every possible eventuality. If the mutual trust is gone, your means of motivating your partner are reduced to implied or real threats, legal, financial, or otherwise. That's not a nice place to be.

I agree with RDK's advice as well; you would also be partners in risk.