Q: I am a broker in Northern Virginia and have gradually built up my business to the point where I now need to bring in another broker. I have made contact with a broker who wants to merge his business into mine, but I don't know what the best legal structure is for such an arrangement. Can you advise?
A: There are a number of legal entities available. While you were by yourself, in effect you were a sole proprietor of your business. This is the most basic form of commercial organization.
Now that you want to join with another broker, there really are two courses to consider: a partnership or a corporation. Under the partnership form of arrangement, it is necessary to enter into a partnership agreement that will spell out all of the terms and details. While this will probably require an attorney to prepare the partnership papers, this form of business organization is relatively easy to maintain.
You might also consider creating a corporation, but there you will have to file a number of legal documents with your state corporation division, and the initial costs for incorporating may not be worth your while as your new business develops. You certainly want to touch base with your accountant for guidance as to whether the partnership or the corporate route is best for you.
I suspect, however, that a simple partnership agreement will suffice for the time being. After all, both you and your new partner will be eyeing each other suspiciously -- at least until you learn to work and trust each other. This is human nature, and you should certainly protect yourself.
If you go the partnership route, you will need a written partnership agreement. This document should spell out at least the following points:
What name will your partnership take? Will this name have market appeal, and will it conflict with similar business names in the area?
Spell out the purpose of the partnership. Will it be limited exclusively for your real estate business, or do you want to permit other business functions if the partners are in agreement?
What is the term of the partnership agreement? Generally speaking, it should be indefinite.
What will each partner contribute to the partnership? The contribution must be spelled out in the partnership agreement itself?
How will the profits and losses be distributed, and when?
The duties of each partner must be spelled out in detail, to avoid future disagreements as to the work scope.
Termination provisions -- whether by death, disability, or mutual consent -- must be carefully worked out.
In the event that a dispute develops between the partners, it is recommended that the matter be brought before an arbitraton panel, with the decision binding on the parties.Arbitration, in my opinion, is quicker and considerably less expensive than having to go to court to resolve any differences that might arise.
A written partnership agreement is an essential element of the arrangement between you and your new partner. This document will set forth the basis of all your future actions, and it is important to give careful consideration to all aspects of the partnership before it is formed.
After all, the only time you will regret not putting the partnership details in writing is after you have had a falling out with your partner, and by that time it will be too late to reconstruct the agreement.