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  1. #1
    Join Date
    Jan 2020
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    1

    Default Considering 10% Partnership for Small Business

    My question involves business law in the state of: Wisconsin

    I have worked at a single-owned small business (restaurant and bar) for over 3 years where I am the general manager. In the 6 years that the current business has operated it has grown from a small restaurant with about 6 employees to a successful larger operation with about 40 employees. We are in the process of opening a second location in a nearby city and the owner (who is a friend that I find to be trustworthy) has offered me a partnership option for 10% of the business (the new location will be under a new LLC so partnership would just be for that location). I'm just curious if anyone has any advice as far as what I should keep in mind going in to this. Also the owner mentioned that we could have a legal agreement that would put me at no risk if the business were to not be successful, and I was wondering if anyone has experience with something like that as well. Thank you.

  2. #2
    Join Date
    Oct 2016
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    3,667

    Default Re: Considering 10% Partnership for Small Business

    One thing you need to keep in mind. It will be hard for you and the other owner to create a legal document that would fully shield you from a suit by a third party.

  3. #3
    Join Date
    Oct 2006
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    15,983

    Default Re: Considering 10% Partnership for Small Business

    Quote Quoting PayrolGuy
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    One thing you need to keep in mind. It will be hard for you and the other owner to create a legal document that would fully shield you from a suit by a third party.
    While I agree, I don't necessarily think that the fact that as a 10% owner you cannot be fully shielded from a suit by a third party should be the criteria by which you make your decision.

    If you do not sign any loan documents, guarantee payments to any vendors or handle issuing payroll or checks, you should not end up being liable for any debts if the business fails. Just make sure that the new company has the proper liability insurance and other forms of insurance.

  4. #4
    Join Date
    Mar 2013
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    17,610

    Default Re: Considering 10% Partnership for Small Business

    Quote Quoting sushingames
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    (who is a friend that I find to be trustworthy)
    I can't tell you how many hundreds of expensive tales of woe included that statement.

    Make sure you have a lawyer review everything before you agree to anything.

    You may be good as a general manager but being a part owner is a horse of a different color.

    By the way, how much money is he asking you to put in for your 10%?

  5. #5
    Join Date
    Jul 2018
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    2,058

    Default Re: Considering 10% Partnership for Small Business

    Quote Quoting sushingames
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    I'm just curious if anyone has any advice as far as what I should keep in mind going in to this.
    As concerns legal advice, please read the disclaimer ("Notice") at the bottom of every page at this site.


    Quote Quoting sushingames
    View Post
    Also the owner mentioned that we could have a legal agreement that would put me at no risk if the business were to not be successful, and I was wondering if anyone has experience with something like that as well.
    I have several thoughts about this, the first of which is that you indicated that the following statement is somewhat ambiguous: "the owner . . . has offered me a partnership option for 10% of the business (the new location will be under a new LLC so partnership would just be for that location)." "LLC" stands for limited liability company. It's a business entity form that is similar to a corporation. Notably, LLCs are owned by members. LLCs do not have partners, so you're mixing terminology (although folks do often throw around the word "partner" without any intent of being precise). Why is this important? Because, like corporations, the owners/members of an LLC are not generally liable for the debts of the LLC. On the other hand, in a general partnership, all partners are jointly and severally liable for the debts of the partnership. However it is that this entity is set up, you should make sure it is done by someone who knows what he/she is doing and that you have an attorney who represents only your interests review everything and advise you. By the way, while the owners/members of an LLC are not generally liable for the LLC's debts, they may be personally liable for various tax obligations. That's something to discuss with a local attorney.

    Also, while you might not be liable for the LLC's debts, it may be that no one will extend credit to the LLC unless the members sign personal guarantees that make them personally liable.

    As far as getting sued, there are a whole host of reasons why an LLC that operates restaurant/bar might get sued. It would be fairly uncommon for someone to include the owners/members in such a lawsuit, but it could happen. There's no agreement that you could make with the current business owner that would prevent that or, depending on the specifics of the suit, prevent a court from entering a judgment against you. The LLC might owe you indemnity as a matter of law, and you could get an agreement from the current owner to indemnify you. However, any such indemnity may be worth no more than the paper it's printed on. If you aren't familiar with the concept of indemnity, I suggest you do a bit of googling. Insurance is the best way to protect the LLC and yourself in situations like this.

    Finally, you didn't say what you'd be contributing in exchange for this "partnership option for 10% of the business." Is the current owner asking for a capital contribution (i.e., a chunk of money)? Will you still be paid while working for the new LLC? Or will your only compensation come from distributions from the LLC?

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