going into a partnership

Are you considering a Business Partnership Agreement?

I have a friend who rather cynically says that, “a partnership is the only ship sure to sink”. Whilst I am confident that is not always the case, we certainly see enough partnerships that have sunk to know that it can be a mine field – which is why you need a legal business partnership agreement.

Most business partnerships seem to be forged between siblings and/or best friends; probably because there is a history between them going back a long way and there may well be a shared mutual love or enthusiasm for a particular interest which they believe they can turn into a profitable business.

My observations of partnerships that have gone wrong (due to a lack of a Business Partnership Agreement) are the following:

  • There is nothing worse than seeing two people who were once best friends become bitter enemies because of a failed business venture. You need to be very clear when going into business what roles and duties each of you are to perform and reduce that to writing so that you are both clear as to your position within the business. For most businesses to be successful there needs to be balance. Invariably one partner is good at the back end (Administration, financials, operations etc) and the other at the front end (Marketing, sales, public relations). When both partners are good at the one thing it often means that another part of the business is being neglected.
  • Make sure both of you are at risk financially should the business fail. There is nothing like having some ‘hurt money’ invested in the business to make sure everyone is focused on its success. Cases I see that are most prone to failure is where one partner has put up all the capital. This means he/she is the one who is up all night worrying and working around the clock to ensure the business stays on track.
  • Whether it is a partnership or a company, make sure the Business Partnership Agreement or Shareholders Agreement is in place to cover events such as one partner wishing to retire, death etc.
  • Often businesses start to fracture when one or both of the partner’s spouses get involved in the business. Have very clear ground rules concerning the involvement of family in the business.
  • Speak up – make sure you have open lines of communication so that if something is troubling you, you have a way to address this. An example may be a meeting at a coffee shop once a month to discuss the business and raise any concerns either partner may have about the business or performance of the other partner. All too often such emotions arise where one partner will become annoyed and frustrated at the conduct or lack of performance from the other partner, but does not say anything, preferring just to sit on it and stew until it reaches boiling point. Then things are said in the heat of the moment and can put tremendous pressure on partnerships.

My advice to people going into partnership is to look carefully at the person you are going into partnership with, look at their strengths and weaknesses and whether they compliment yours and are you prepared to lose their friendship in the event that things go bad.