Thinking of Bringing On a Business Partner?

As an LLC owner, deciding to bring on a business partner is one of the most consequential choices you’ll make for your company. The right partner can accelerate your growth, expand your capabilities, and help you weather the ups and downs of entrepreneurship. But a rushed or poorly vetted partnership can just as easily cause costly conflict, erode value, and even lead to litigation.

Before signing any documents or shaking hands, here’s a legal checklist of due diligence steps every LLC owner in Colorado (and beyond) should take:

1. Understand Their Background — and Verify It

You want to know who you're getting into business with. Beyond the resume and references, conduct a formal background check to identify any red flags such as:

• Prior bankruptcies or liens
• Litigation history (especially business disputes)
• Criminal records or regulatory violations
• Industry reputation and professional affiliations

Also, review their business track record. Have their past ventures succeeded? Why did previous partnerships end?

2. Review Their Financial Position

Your partner’s financial standing can impact the LLC’s credibility and operations. Request and review:

• Personal and business tax returns (3 years minimum)
• Credit reports (with consent)
• Statements of assets and liabilities
• Any outstanding loans or financial obligations

You’re not just checking for wealth — you’re assessing risk exposure and alignment of financial commitment.

3. Align on Vision, Values, and Commitment

Even strong businesses fail because of incompatible partners. Have candid conversations about:

• Long-term business goals
• Work ethic and time investment
• Leadership roles and decision-making styles
• Risk tolerance and exit expectations



Document your understanding early in a founders’ memorandum, even if it’s non-binding. It will serve as a blueprint for your Operating Agreement.

4. Update (or Create) a Written Operating Agreement

This is not optional. A well-drafted Operating Agreement will cover:

• Capital contributions and ownership percentages
• Voting rights and management authority
• Profit/loss allocations and distributions
• Dispute resolution methods
• Exit strategies and buyout provisions

Don’t rely on a handshake — rely on enforceable terms. Don’t rely on a strong personal, family or friend relationship – when the going gets rough, a well-drafted Operating Agreement can help avoid disputes and save your relationship. Each state, including Colorado, defaults to generic LLC statutes if you don’t have your own agreement, and that can cause unintended results.

5. Protect the Business With Legal Safeguards

Finally, don’t forget these key protections:

• Nondisclosure Agreement (NDA) – Protects confidential business information during the evaluation phase.
• Non-compete / Non-solicitation clauses – If enforceable, can guard your business from poaching and competition.
• IP Ownership – Ensure all intellectual property remains with the company, not individual partners.

Final Word

Adding a partner is more than just splitting responsibilities — it’s a legally binding relationship that affects your company’s trajectory, liability, and even survivability. At our firm, we routinely guide business owners through this critical process, from legal review to custom agreements.

Before you sign anything, get legal advice that protects your future.