How To Set Up The Perfect Business Partnership

[Christian Brodin]

Finding good partners is the key to success in anything: in business, in marriage and, especially, in investing. – Robert Kiyosaki

What is a partnership in business?

A business partnership is created when two or more people, companies or organizations come together to form a new business, company or organization.

Often times two people with similar visions for a great business decide to work together, forming a team that is stronger than each of them individually.

Why is it so important to find a good partner and structure the partnership to protect the interests of everyone?

Well, if you look closely at the business pages of any newspaper or website, you will often see articles detailing business partners suing each other over some dispute. Maybe it is over money, ownership interests, or if the stakes are high enough it could be over people. These fights can become very ugly.

When partnerships dissolve, the former partners often go all out to get their way. It’s almost like a divorce.

One famous case of former partners fighting was Facebook founders Mark Zuckerberg and Eduardo Saverin in court. These two were the original founders of Facebook, working together while at Harvard. Later they met in court to settle their disputes about ownership and rights to Facebook’s billions. The case was eventually settled out of court for an undisclosed amount.

After seeing how horrible these disputes can get, it should be your primary goal to avoid ending up in court. Ask anyone who has been involved in a lawsuit, it can be the worst time of your life and will cost you a lot of money, time, and energy leaving you physically drained.

So, how can you avoid the situation in the first place?

Here are some things to consider:

What are the Advantages and Disadvantages of Business Partnership

Forming a business partnership should always be for logical and practical reasons and benefit everyone involved. But, there are circumstances where a formal partnership might not be the best solution.

To help determine if a business partnership is right for you, take a look good at all of the advantages and disadvantages:

Advantages of Partnerships:

Capital – In theory the more business partners you have, the more money you should be able to raise to start the business. More money means more flexibility and more potential in the development and growth of your business.

Shared Responsibility – Business partners can share responsibility when managing and running a business. This allows partners to focus on their strengths rather than struggling with a part of the business they are not well suited for.

Decision Making – When it comes time to make decisions, more people can come up with more ideas to solve problems and make better choices.

Disadvantages of Partnership:

Being in a partnership isn’t always beneficial. There are some disadvantages to partnerships that you need to be aware of including the following:

Disagreements – Risks of disagreements is one of the most largest disadvantages of business partnership. People often have different ideas on how to run and manage their business. This can lead to disputes which could harm your business and the relationship between partners.

Taxation – You need to think seriously about the tax implications of a partnership. I highly recommend that you talk to a professional tax advisor, or your accountant to better understand what business entity will work for you, and your partner(s).

Profit Sharing – Since you are not the only person who owns the business, you will need to share profits with your partner(s). Figuring out how to distribute profits can be a difficult task, and you need to be very clear about how this will be handled. Will everyone get equal amounts of the profits? Will money be allocated based on ownership shares or each partners contribution to the success of the business?

Choosing a business partner:

Executive Coach, Bob Moore of Vistage International, suggests the following to anyone looking to team up with a partner in business:

– Define your core values!

The more you understand about how you want to do business, the better suited you are to decide if a new partner will be a good fit or not.

Are they interested in building long term value or short term profits? Do they agree to fully disclose all of their dealings with other people? Do they share your values when it comes to ethics and integrity?

– Do background and reference checks!

Even if it is a family member, or a close friend. Better to be safe than sorry!

Where have they worked, what did they do, who did they work with, and what does their previous boss have to say about them. You can never know enough, and the more research you do, the more likely you are to discover any issues BEFORE you start a business partnership

– Get professional advice on how to set up a partnership agreement

It might be more expensive to have a professional and well established law firm help you with your Partnership agreement, but it will save you time and money down the road in the case of any disagreements. Clearly defined clauses for how to contribute money, make decisions, what kind of business you want to be in, how to shut down the business, and ownership percentages will be tremendously helpful if you ever find yourself in a disagreement.

– Outline a business plan

You don’t need a 500 page document to help you and your partners understand how you will work together to achieve the goals of the company, but you do need something. A simple business plan serves as a guideline for how you operate and what projects you want to take on. If you are in the software business, and your partner suddenly decides that he or she wants to be in the business of growing organic vegetables, you could be in for a big surprise.

The more clarity that you can provide before you start, the easier it will be down the road whether you have success of problems.

Trust your instincts and speak up if things are not going the way you want them to.

Do you have experience from a business partnership?  What did you learn that you would like to share?

Christian