12 Warning Signs You’re Headed for a Lawsuit with your Partner-Part 5
Welcome to Part 5 in a 12-part series entitled “12 Warning Signs You’re Headed for a Lawsuit with Your Partner”. If you missed Parts 1-4, click here to get to our Real Estate Investor bLAWg where you can find those and any many other informative blog posts. The fifth warning sign is …
#5: Your written agreement does not address cash callsAll too often, written agreements fail to address this sensitive issue: What happens if, despite your best-laid plans and projections, your venture ends up needing more money than you planned and originally contributed to capitalize your deal? Perhaps the venturers do not want to consider this possibility up front, when they are drafting their agreement. Or their lawyer failed to include a provision addressing this. Regardless, even though the topic of cash calls is one of the most difficult to discuss, that is exactly why you must get out of your comfort zone and deal with it before the unexpected circumstances of the deal require you to confront and deal with the lack of adequate funds to continue with your venture. Regardless of when you deal with it, whatever you decide is the best way to handle an unexpected shortfall in funds should be documented. If your agreement does not address this, then when storm clouds start to form over your venture, you are headed for a tough discussion with your partner that could result in a lawsuit. It may not be too late. Sit down with your partner right now and have the discussion you should have had when you first got together…and document it! There are many different sub-issues that must be part of your cash call discussion including, but not limited to, do you put a cap on the maximum cash call, if so then how much is that cap, who decides if a cash call is required, how long should the parties have to come up with their pro rata share, if one of the partners cannot come up with their share, what should happen then, and many others.
If you are entering a partner relationship of any kind, whether it is an LLC, corporation, general or limited partnership, call us. We can set it up to minimize the risk of future disputes. If you are having challenges with a current partner, call us. We may be able to help you resolve your dispute and avoid a lawsuit. If litigation with your partner is inevitable, we can handle that as well. If you’re not sure if your agreement is properly drafted to minimize your risks of future dispute and/or to adequately protect you in the event of a future disagreement, call or e-mail us to learn about our special “Partnership Agreement Audit” offer. For more information, call Jeff Lerman at 415-454-0455 x234 or e-mail him at [email protected]