by: Deborah Sweeney, CEO of MyCorporation.com
A business partnership is a very unique sort of relationship. Not only do business partners have to work through the usual disagreements and disputes that all people in relationships go through, but they have to do so while running a new company. Their livelihoods are tied up in this venture, and because of these stakes, a business partnership can also destroy what was an otherwise solid friendship. Before you decide to team up and go into business with a partner, no matter what the nature of your relationship together is, keep the following areas in mind in order to do it properly.
Don’t rest on the laurels of friendship
Most business partnerships start organically. Two friends come up with an idea over dinner and decide to try their hand at turning that idea into a viable company. While going into business with a friend sounds great on paper, a pre-existing relationship can often complicate a partnership. For the owner of a start-up especially, it is extremely difficult to keep business separated from personal affairs, and any friction caused by business will inevitably bleed into your personal life. For two people that were, until recently, good friends, this can create friction and disagreements within the decision making process and the resulting fallout will hurt the company. If you are thinking about going into business with a friend, you first need to figure out what type of a businessperson they are, and whether or not they exhibit the qualities you want in a business partner.
Aim for balance
Each person should bring something positive to the partnership – something that the other person wouldn’t be able to provide. Many successful business partnerships have an inside-outside dynamic. One person is much more outgoing, and is the one who secures loans and recruits the best and the brightest employees to work for the company, while the other partner focuses inwardly and makes sure the business is operating like it should. This allows each partner to focus their efforts on one, important aspect of running the business, and keeps each partner from stepping on the other’s toes. Of course your partnership doesn’t have to follow that trope – just make sure that there is some semblance of balance. Few things end a partnership quicker than one partner feeling like they are doing more work than the other.
Formalize the partnership
Slamming down a contract in front of your friend and asking them to sign it might make you feel uneasy, but it has to be done. Running a business requires a heavy investment of both time and resources from both partners, and a contract protects that investment. The most basic formal partnership is created with a partnership agreement in place. This agreement should define the responsibilities of each partner, lay out who owns what, determine how each partner is paid, and detail a plan for mediating conflicts and for exiting the partnership. If you choose to incorporate or form a limited liability company, this partnership agreement should be set into your bylaws or operating agreement. Just make sure that you have an experienced attorney review your partnership agreement so it includes everything it needs to.
Opening up a business with another person is a great idea, as long as each partner brings something unique to the business. Friendship can blind us to the follies of potential partners, so stay objective and clearly lay out what is expected from each party. Then formalize that agreement with a legal partnership. That way both partners know exactly what their responsibilities are, and they can feel confident in their roles as they work to grow the business.
Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.