It’s lonely at the top. Even if, by the “top,” it’s just heading up a one-person or brand-new business. That’s why many great companies were started by partners: Ben and Jerry. Steve Jobs and Steve Wozniak (Apple). Larry Page and Sergey Brin (Google).
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. Face it: starting and running a business can be a lot more fun when you’re working with someone you like and respect.
But partnerships have perils. Over time, partners are likely to have disagreements, resentments, changing goals and lifestyle choices. If you’re thinking of working with a partner — or already have a partner — it’s important to think through and formally structure your relationship.
Ideally, in a partnership, there’s strength from having a balance of complementary talents or personalities.
You, for instance, may be a terrific “outside” person: securing sales, marketing and networking. Your partner may be a terrific “inside” person: making certain bills are paid and your products or services get produced. But it’s easy for tensions to grow. Your partner may view the time you spend on business lunches, trade shows, and sales calls as just fun and games. Meanwhile, you may resent having to split all the cash you bring in with a partner doing what you consider mundane office work.
Even more likely, over time, partners may have conflicts about how to spend money, who to hire, which direction to take the company.
So before you get into a partnership, be sure to:
1. Have an in-depth discussion. Sit down and thoroughly discuss these issues:
• What is the ownership division? Who owns what percent?
• If it’s a 50/50 split, how do disagreements get settled?
• What jobs/responsibilities does each partner have?
• How much time will each partner put in?
• How much money will each partner contribute?
• How will general business decisions be made?
• What decisions does each partner have final authority on?
• How will serious disputes be resolved?
• What happens if one partner wants to leave the business?
• What happens if one partner wants to sell the company?
• What happens if a partner dies? Becomes disabled?
• What if you want to bring on additional partners?
• Can partners work for any other company or do any other work on the side?
2. Draw up written partnership agreement. Once you’ve discussed all the key issues, go to 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.
3. Choose a corporate form. Discuss with your lawyer what legal form your partnership should take. A simple partnership does not provide protection for either of your personal assets. Instead, consider incorporating or becoming a limited liability company (LLC) or partnership (LLP).
4. 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.
And here’s something to keep in mind: in the eyes of the law, you don’t need a written agreement to have a partnership. If, over a beer, you and a friend decide to start selling your special salsa at a street fair, you may have become partners. Your friend may acquire rights in your salsa recipe, and you may each be responsible for all bills and obligations.
Partnerships can be terrific, but when things go wrong between the partners, it can often mean the demise of the whole company. Just remember Sonny and Cher.
Rhonda Abrams is the author of “Six-Week Start-Up” and “What Business Should I Start?”
