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TRUE OR FALSE: "Partnership Agreements are Unnecessary"

True and False.

Legally speaking, you don't need to file anything, draft anything or sign anything to set up a valid partnership. Just start doing business with another person and, wallah, you've got yourself a partner and a legal partnership.

Oh, and you now have one or more persons in your life that can ruin your life. That's right. You are personally liable for partnership losses -- including those created by that dimwit of a partner you have.

That's why you want the legal protection of a carefully considered, well-drafted partnership agreement. Even though the law doesn't say you have to do one, you'd be wise to have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed.

Drafting and negotiating the partnership agreement will force you and your partners to confront serious issues about how you're all going to run, fund and profit from the business. This process will either make your partnership stronger, or convince you that you really don't see eye-to-eye with your prospective partners after all. Either way, you and your partners win in the process and the legal fees incurred can save your financial life down the road.