LAW
Things to Consider When Forming a Business Partnership
Business co-ownership is like a marriage. Most people go into it trusting, optimistic, expecting happily-ever-after, but the truth is that even in marriage, sometimes people drift apart, goals change, true personas are revealed and the relationship falls apart. What happens to the relationship, the products of the relationship, and the things acquired during the relationship when one party is ready to move on?
Partnerships can turn once best friends into bitter enemies and create feuds that continue for generations. Just as you would before accepting a marriage proposal, there are several questions that you must ask yourself and satisfactorily answer before you decide to form a partnership with someone. They are sometimes difficult but very essential questions.
Compatibility – Can I work with this person? There is no point going into business with someone whose work persona is not compatible with yours. If you think differently about business ethics, work productivity, and even the level of personal sacrifice needed to get the partnership off the ground, then you probably should not be in business together. Your compatibility is crucial because as the saying goes, ‘a house divided, cannot stand.’ On some level, you must be able to vouch for your partner.
Long-term vision – Do I have the same long-term vision as my potential partner? In what direction do we want to grow the business? Are we on the same page about how to handle the finances? For instance, to grow the business, are all partners willing to take home a smaller share of the profits so that more capital can be invested in the business?
The Benefit – Is the partnership mutually beneficial? This is where you allow your selfish side to rule. You must gain something from a partnership: additional skill, resources, or just simply economies of scale advantages. Two heads, they say, are better than one, and more heads are better than two. The partner may bring something to the table that you lack – their network of friends and/or business associates, administrative skills, or something else that complements the skills that you have.
Intimacy – Can I be intimate with my potential partner? A partnership forces intimacy on all parties involved. You must share information, make yourself and your resources available for the benefit of the partnership and spend a lot of time together ensuring that the two entities function seamlessly in the partnership. When partners are intimate and committed to the partnership, then issues of sabotage and conflict of interest rarely arise.
Accountability – This is closely related to intimacy. The whole point of going into a business is so that you can make money. You go into a partnership because of the potential to leverage both skills and resources to make money for yourself and your partner. Nobody wants to feel that they have been cheated, which is why transparency and accountability are essential. The rules about finances must be clearly spelled out for and respected by all concerned.
Exit – What if something goes wrong? How will you end the partnership? Unfortunately, people do not like to think about the possibility that a partnership will fail. Including an exit clause in the articles of incorporation may seem like a pre-nuptial agreement, predicting doom for the relationship, but it is better to think of the what-if situation when everyone is still ‘friends.’ If/when something goes wrong and the partnership has to fold, people are seldom rational in their decisions at that point. The result is bad blood and lengthy legal battles.
Sure, your university roommate was a great study partner or the perfect person to unwind with. That alone does not make them the best business partner for you, and that is okay. Do not go into a business partnership with your heart alone. Use your head so you don’t get burned!
Trust me, if you think these issues are difficult to confront, the alternative is much worse. I’ve been there.
