Starting and running a business can be a lot more fun when you’re working with someone you like and respect. With a partner, you have someone to share the excitement and risks of running a company; someone to bounce ideas off of; to help shoulder the financial and work-load burden.
But partnerships have perils. Over time, partners are likely to have disagreements, resentments, changing goals and lifestyle choices. Partners may also have conflicts about how to spend money, who to hire, which direction to take the company. When partners don’t get along, the business inevitably suffers.
Before you get into a partnership, be sure to:
Have an in-depth conversation with your partner
Some issues you should thoroughly discuss include:
- What is the ownership division and who owns what percent?
- What jobs/responsibilities does each partner have?
- How will serious disputes be resolved?
Draw up written partnership agreement
Once you’ve discussed all the key issues, approach an attorney to draw up a legally binding contract, spelling out the terms of your partnership. If you’re already working with a partner, you still need to do this! If one partner doesn’t want to do this, that’s a big red flag.
Consider a buy/sell agreement.
A “Buy/Sell” agreement spells out the terms by which one partner can buy the other out. In the event of a dispute or differing goals, a buy/sell agreement can enable the company to survive. Discuss ways, such as purchasing life insurance, to buy out a partner’s heirs in the event of death or disability. You may not want to run the business with your partner’s spouse or children.
Partnerships can be terrific, but when things go wrong between the partners, it can often mean the demise of the whole company.