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Small Business Structure Drives Debt Responsibility in Partnerships

Posted: 26 Feb 2019 11:28 AM PST

Businesses are usually joint ventures. Rarely does one person conceptualize, create and build a business to success without help. Starting a business usually means partnering with friends, family or other industry professionals. It's a big job, and if you partner with someone, it's important to make sure you properly establish your business to protect yourself financially.

If you set up a general partnership and leave the business, you could be on the hook for any debt the business has taken on and failed to pay. By understanding the different types of businesses, personal guarantees, and what to do as partners come and go from your business, you can protect both your personal assets and your business from potential financial issues.

Business structure, personal guarantees, ownership stake

There are two main types of partnerships among small businesses: general partnerships and limited partnerships. General partnerships are exactly what they sound like. Two or more individuals enter into an agreement to start and run a business. This type of business can be set up without any legal entities.

"Me and you can have a handshake today, and we're a general partnership going forward," said Walter Gumersell, partner with Rivkin Radler. "You don't have to register with the state."

Unless there is a predetermined partnership agreement that all parties have signed, the general partnership means each partner is equally liable for debt and other outstanding payments, according to Gumersell. The general partnership is also a type of business that does not protect partners' personal assets from business liability. Only limited liability companies (LLC) and corporations can offer this type of protection.

A limited partnership is between a general partner and a limited partner, who usually serves as an investor or supplemental supporter. The general partner, like in a general partnership, is exposed to the lion's share of the liability. The limited partner is only accountable for their stake in the company, according to Gumersell. Unlike a general partnership, limited partnerships are registered with the state and require formal documentation detailing an agreement between parties.

The key takeaway is that if you are involved in a general partnership and leave the business, unless otherwise agreed upon in a legal document, you'll be on the hook for business debt when the lender comes to collect.

In a general partnership, "each partner is 100 percent liable for anything done in the partnership name," said Jim Wilson, founder and principal attorney of Wilson Law Group.  

If you and your partners set up an LLC or corporation, your personal assets will be separate from your business assets. If the proper agreement is reached before someone leaves the company, a former partner cannot be found liable unless the business is insolvent or the former partner signed a personal guarantee, Gumersell said.

Personal guarantees are agreements with a lender that say an individual will personally pay the remainder of a debt if the business cannot make payments. Whether you're part of a corporation, LLC or general partnership, you can end up on the hook for a partner's personal guarantee if the lender decides to sue the partnership to cover the debt, according to Wilson.

This distinction is important, and, as with any financial document, it's crucial to understand what you're signing before doing so.

"I've seen things where people sign, [and] they think they're doing it for their business – you know, the corporation," Gumersell said. "But the document in front of them that they sign, they sign personally. That's a tough one to win in court, because there's no mention of the corporation."

What to do when leaving a business

If you're leaving a business, whether it's a general partnership, LLC, limited partnership or corporation, there are some important steps to take to protect yourself financially from future transactions by your former business.

Gumersell recommends establishing a written agreement of termination. This agreement should say that the company will not hold you financially accountable for any acts that occur after your termination. It should also detail the financial compensation for exiting. You should try to get out of any personal guarantees you signed on behalf of the business or other partners, but this could be very difficult. By ironing out these issues, you can protect yourself from your company's future financial dealings and ensure you receive the value of your original stake in the business.

What to do when your partner leaves the business

If you own a business and a partner is leaving, you should include a section in the termination agreement that says the person leaving has no further claims against you or the company, according to Gumersell. Wilson said remaining partners should also look to keep the exiting partner financially committed to the debt incurred before a certain date within the company. This will vary based on each business's specific situation.

The agreement of termination serves to protect both the individual leaving and the business from future financial gray areas.

Bottom line

When you set up a business, it's crucial to pick the right type of legal entity to protect your personal and business assets. Partnerships can be complicated, so make sure you work with a lawyer to set up the right legal documentation between all parties. If you have a handshake deal with someone, that's considered a general partnership, which is a type of company that will leave you personally exposed to your company's financial issues. By working with your business partners and legal representation, you can set up a situation that works best for everyone.  

The advice in this article should be received as general information on partnerships and business debt, and not specific legal advice, which only a certified legal professional is qualified to provide. If you're worried about your specific situation, it's important to seek legal services.

The Non-Risk Taker’s Guide to Successful Entrepreneurship

Posted: 26 Feb 2019 07:00 AM PST

Small businesses fail at an alarming rate. Considering 50 percent of all startups don't survive past the five-year mark, recognizing and mitigating risk is a wise business strategy.

The argument can be made that if everyone played it safe, there would be very few small businesses that grow into big companies like Apple, Spanx, The Walt Disney Company and Ben & Jerry's. Yes, society at large applauds those who risk everything for a startup, but only the entrepreneurs whose businesses survive and thrive are able to take their bows. The reality is that many fail -- and there is no honor in losing your home or your retirement funds over business debts.

Contrary to popular belief, you don't have to swim with the sharks or walk an infinite financial high wire to become a successful small business owner. And, not all entrepreneurs are inveterate risk takers by nature. More often than not, small business owners succeed by mitigating risks, not ignoring them. '

Here are seven recommendations to lessen the risks involved in starting a small business.

1. Don't mortgage your home or your future.

There is only one reason to mortgage your home or spend your life's savings on a business venture: All other sources of financing are unavailable to you. If multiple banks and financing sources have turned down your project, you must reconsider whether your venture is on solid ground before digging into your savings. After all, if a bank won't work with you, something is wrong with your business plan, cash projections, your credit rating or a combination thereof.

2. Scale your business plan to match your available financing.

Your business plan may be to establish 60 locations across the nation, but if you don't have adequate funding to build the first location, then your vision is just a dream. Scaling a business plan to match available funding doesn't minimize your grand big picture; it just adds a dose of reality to your plan.

Sometimes scaling a business means adding service delivery options that change and grow over time. There is no better example than the latest trends in restaurants and food service. In the past, a restaurateur had to plan and budget for a brick-and-mortar location. Today, a person hoping to open their dream restaurant may begin with a home-based catering business. Food trucks can also be a stepping stone for building a culinary business without spending every last dollar on the perfect restaurant location upfront.

3. Search for the perfect bank and banker.

Not all banks are created equal. In fact, no two banks or bankers are alike. When starting a business, a commercial loan is just one of the many needs you will have. A banking relationship should be one of your most trusted, most intimate relationships, similar to your lawyer and accountant. A great banker will do everything possible to keep a business customer from failing. As a banker's commercial customers grow, so does the bank. A trusted banker wants to see your financial plans and reports, give advice on finance matters and contribute to your strategic decision making.

4. Finance your own growth.

Not all business owners should finance their own growth. Many companies must have capital from others to launch, grow and sustain business. However, for the gun-shy small business owner, self-financing alleviates the anxiety that can accompany significant debt.

Financing your own growth takes tremendous discipline. Once you start turning a profit, the temptation grows with every dollar earned to spend it on everything except the business. Reinvesting profit in the business may be the only way to infuse the capital needed to grow the company without incurring the kind of debt that makes even the strongest-willed investor lose sleep.

5. Stay on top of your billing and accounts receivable.

Many businesses have failed or not grown as much as they could have thanks to uncollected receivables or debt. Surprisingly, a great many startups and small businesses struggle mightily because they don't regularly bill their customers. Inconsistent billing practices result in inconsistent payment and growing debt.

The quickest way for an entrepreneur to eliminate financial risk is to be steadfast in billing and collecting receivables. Cash in hand is a tremendously satisfying feeling and worth the awkward collection calls. You deserve to get paid for your services or products. Period.

6. Consult trusted advisers in your decision-making process.

One of the best ways to minimize risk in life is to invite trusted people to participate in your decision process. Aside from your lawyer, banker and accountant, other business owners can be invaluable sources of insight that help you evaluate options and make decisions. By joining a mentoring organization or peer-to-peer advisory organization, you gain the experience and insight of a number of experts who've taken risks, too. Every business owner, to some extent, has been down this path of parallel risk evaluation and decision making.

7. Ask and answer, "What's the worst thing that can happen?"

Always ask yourself, "What's the worst thing that can happen?" Your answer to this question establishes your tolerance for risk, but more importantly, the direct and subsequent impact risk has on your life.

Usually, the worst thing that can happen is a life-changing event like divorce, financial default or illness. The worst thing that can happen is usually a far stretch from the choice you're considering.

For example, if you're thinking about getting a business loan, but think it's risky, ask yourself: What's the worst that can happen? If you have a great banker, accountant and lawyer, it is unlikely that any of them will give you advice doomed to fail. If you've self-funded your company successfully for two years, a business loan isn't risky because you're ready for next-stage growth. The risk of defaulting is negligible. The business loan will be collateralized by receivables, which you bill and collect religiously. 

Even the most risk-averse can be successful small business owners. The key to fewer sleepless nights as an entrepreneur is to honestly measure your tolerance for risk versus reward. 

6 Best Countries to Get a Business Education

Posted: 26 Feb 2019 06:00 AM PST

Many future successors of family businesses and aspiring business executives go abroad to study business. It's one of the surest ways to learn the best theories and practices, get exposure to real world experiences, and earn a degree that boosts credibility.

If you are thinking of going to a business school, here are some of the best countries to consider.

1. United States

The United States arguably has the most number of highly prestigious business schools that provide top notch instruction and opportunities to learn from real world situations. The best US business schools are a mix of private and public academic institutions.

Of note, the U.S. has the "Ivy League" business schools, which consist of the following:

  • The Wharton School. Located in Philadelphia, Pennsylvania, this is the famous business school of the University of Pennsylvania. It offers BS Economics, MBA/EMBA, and PhD programs.
  • Tuck School of Business. The business school of Dartmouth College in Hanover, New Hampshire, this institution specializes in MBA and also offers an advanced management program for executives.
  • Harvard Business School. The graduate business school of the world-famous Harvard University in Boston, Massachusetts, this private institution has a large full-time MBA program, PhD programs, and several executive education programs.
  • Columbia Business School. If you are thinking of attending business school in New York City, the business school of Columbia University is an excellent choice. Regarded as one of the most selective top business schools, it offers MBA/EMBA, PhD, MS, and MPhil programs.
  • Samuel Curtis Johnson Graduate School of Management. This is one of Cornell University's three famous business schools in Ithaca, New York. It offers MBA/EMBA and PhD programs. The two other Cornell business schools are the Charles H. Dyson School of Applied Economics and Management and Cornell University School of Hotel Administration.
  • Yale School of Management. Located in New Haven, Connecticut, Yale University's Yale School of Management offers MBA/EMBA, PhD, executive education, and joint degree programs.

Other noteworthy business schools in the US are the University of California-Berkeley's Haas School of Business, University of Michigan-Ann Arbor's Ross School of Business, Stanford University's Stanford Graduate School of Business, Northwestern University's Kellogg School of Management, and University of Chicago's Booth School of Business.

2. United Kingdom

Based on the Financial Times European Business School Rankings 2018, 22 of the top 95 business schools in Europe are from the United Kingdom. These include:

  • The London Business School (London)
  • University of Edinburgh Business School (Edinburgh)
  • Durham University Business School (Durham)
  • Lancaster University Management School (Lancashire)
  • Alliance Manchester Business School (Manchester)
  • Henley Business School (Henley-on-Thames and Reading)
  • University of Strathclyde Business School (Glasgow, Scotland)
  • Cranfield School of Management (Bedfordshire)
  • Cass Business School (London)
  • Warwick Business School (Coventry and London)
  • Imperial College Business School (London)
  • Judge Business School (Cambridge)
  • Said Business School (Oxford)

The London Business School stands out as the number one business school throughout Europe. It is the first European academic institution to rank on top of the global MBA ranking (2009). Cranfield University's Cranfield School of Management, on the other hand, has the distinction of being the highest climber in the rankings and is notable for its "levy-friendly" MBA courses.

3. France

Not many associate France with excellence in business education, but it actually has 25 of the top 95 business schools in Europe. It is the location of HEC Paris (Paris), the institution hailed by Financial Times as the top European provider of executive MBA program and the overall second best business school in Europe. France also has the ICN Business School, which is remarkable for its 50:50 male-to-female faculty composition.

Other top business schools in France are Grenoble Ecole de Management (Grenoble), ESCP Europe Business School (Paris), University Paris Dauphine (Paris), Toulouse Business School (Toulouse), Audencia Business School (Nantes), IAE de Paris Sorbonne

Business School (Paris), Rennes School of Business (Rennes), Aix-Marseille Graduate School of Management IAE (Aix-en-Provence), Groupe Sup de Co Montpellier Business School (Montpellier), BSB Burgundy School of Business (Dijon), PSB Paris School of Business (Paris), and Ecole des Points Business School (Champs-sur-Marne).

4. Singapore

Singapore may be a small island nation, but it is known for many great things, particularly its high quality of life and excellent education standards. Three business schools in Singapore snatched positions in the top 11 QS Global MBA Rankings of Asia in 2018. These are Nanyang Business School, NUS Business School, and INSEAD-Singapore.

Nanyang Business School is Nanyang Technological University's business school. It is a large business school accredited by the European Quality Improvement System offering undergraduate, postgraduate, and executive programs. NUS Business School is an institution for business education of the National University of Singapore, the 18 top business school in the 2018 Financial Times Global MBA Rankings. INSEAD, on the other hand, is one of the leading business schools in the world. It consistently ranks among the world's best with its full-time MBA, EMBA, Master in Finance, PhD, and various executive education programs.

5. Spain

Seven Spanish business schools made it to the QS World University Rankings: Global MBA Rankings 2018. Three of them are in the top 25.

  • IE Business School (Madrid). This top-ranked school has a full-time international MBA program intended for professionals seeking to consolidate their management experience.
  • ESADE Ramon Llull University (Barcelona). With an average GMAT score of 665, this business school offers a full-time MBA program that emphasizes creativity and disruptive thinking.
  • IESE Business School (Barcelona). Ranked 18th in the QS global MBA program ranking, IESE provides a 19-month learning experience designed to hone technical and leadership skills in the global setting.

Other notable business schools in Spain are the ESIC Business and Marketing School (Madrid), EADA Business School (Barcelona), EAE (Barcelona), and EU Business School (Barcelona).

6. Australia

Australia has 12 business schools ranked in the QS Global MBA Rankings 2018. If you are thinking of studying business somewhere in the Asia-Pacific, there are several prestigious institutions that can serve you:

  • Melbourne Business School (Melbourne)
  • Australian Graduate School of Management (Sydney)
  • Macquarie Graduate School of Management (Sydney)
  • University of Queensland Business School (Brisbane)
  • University of Western Australia's Business School (Perth)
  • Bond School of Business (Gold Coast), Deakin Business School (Melbourne)
  • RMIT University School of Business (Melbourne)
  • University of Wollongong Sydney Business School (Wollongong)
  • La Trobe Business School (Melbourne)
  • Victoria Graduate School of Business (Melbourne)

It shouldn't be difficult to find a good business school in most parts of the world. It's just important to be meticulous with the requirements as you enroll at the business school of your choice. Make sure you fill out the necessary forms properly and that all your papers are complete. You may also need a notarized translation of some of your documents, authenticated exam scores and experience proofs, as well as letters of recommendation.

Considering Blockchain Integration in 2019? 4 Steps to Take First

Posted: 26 Feb 2019 05:00 AM PST

In the past couple of years, cryptocurrencies have garnered a lot of attention. But what really disrupted (and still is disrupting) the industry is the technology behind what makes cryptocurrencies work -- the blockchain.

Whether you're into finance, health or even transportation, blockchain technology can be integrated to offer your company more efficient operations and provide better services. Big companies from different industries, such as Walmart, Microsoft and IBM, have already embraced and integrated blockchain into their company's operations.

If you're reading this article, then you're most likely considering integrating blockchain technology in your company. However, there are certain things you need to do first to position yourself for a successful integration. Here are four steps to prepare your company for blockchain adoption.

1. Learn About Blockchain Technology

It's never wise to jump into something you don't have a deep knowledge about. That's why before integrating blockchain technology into your company, you need to learn all you can about it first. 

Fortunately, there are tons of resources out there about blockchain, how it works and how it can make your business better. Detailed articles, guides and white papers about blockchain, including stories about how companies in your niche make use of it, should be go-to resources for you. You can also take courses on the subject matter. 

Already have a baseline knowledge of blockchain? Make it a point to stay updated on the latest information on this technology and its many applications. Blockchain is dynamic and a lot of innovations are being made daily. Keeping up with news on sites like Coindesk can ensure you don't miss out on any updates.  

2. Identify the Areas of Your Business Where Blockchain Technology Fits

Blockchain technology can be integrated into your company to help improve your business operations, provide better services, or both. Therefore, identifying which of these your company needs right now is key to deriving the most benefit from the blockchain. 

A good approach is to look for problems your company wants to solve. They could be problems the company is facing internally or problems your target audience wants solved. However, keep in mind that blockchain can't help solve every business problem. Therefore, you need to know whether integrating blockchain to solve that specific problem will make business sense or not. This way you and your team will be able to clearly identify exactly where to integrate blockchain.

Once you've identified the pain points you want to tackle, you need to have a game plan on how to carry on this project. This is something your team should draw out together. With a proper plan, everyone in your company will understand the step-by-step actions they're expected to take. 

3. Hire Expert Consultants

At the plan execution stage, you should hire experts in the field to ensure seamless integration. Hiring the right set of people to help you integrate blockchain in your company is very crucial. The concept of blockchain technology is technical and not something every developer knows about. You will need people with a vast amount of knowledge about blockchain technology and its integration. Experts like a blockchain consultant, who will give you advice on the right steps to take, and a blockchain developer are vital players you need to have on your team. 

4. Inform Your Target Market

Proper integration into blockchain technology won't be complete without letting your existing and prospective clients know about the integration. They have to be informed of the latest development in your company and how it will affect them. 

You're not only integrating blockchain in your company; you're also initiating your clients into the technology. In other words, acceptability in the market is key.

With that in mind, be prepared to answer questions from your clients like:

  • Will this product or service serve me better now that the company integrated blockchain technology?
  • Will this affect the price?
  • What changes do I expect now that the company has integrated blockchain?
  • Will there be a learning curve at my end?
  • What are the benefits I'll get now that the company integrated blockchain?

Quite a number of people have the thought of integrating blockchain into their company but lack the basic steps to actualizing it. By following these tips, you're setting yourself and your company up for successful blockchain adoption.
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