It can be lonely at the top. Even if, by the “top,” it’ is simply heading up a one-person or brand-new business. That is why many great companies were started by partners. Find out four important things you must consider before entering into a partnership.
With a partner, there is always someone to share the excitement and risks of running a business; someone to bounce ideas off; to help shoulder the financial and work-load burden. Let’s face it: starting and running a business can be a lot more fun when working with another person.
But partnerships also have perils. Over time, partners are likely to have disagreements, resentments, changing goals and lifestyle choices. If working with a partner is an option that is being considered — or that arrangement is already in place — it is important to think through and formally structure the relationship.
So before leaping into a partnership here are four things we believe you should consider:
1. Have an in-depth discussion with the other partner.
- 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 and how much time will each partner put in
- How much money will each partner contribute?
- How will general business decisions be made and who has the final authority on what?
- How will serious disputes be resolved?
- What happens if one partner wants to leave/sell the business?
- What happens if a partner dies or 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 all the key issues have been discussed, get legal advice and get a legally binding contract drawn up, spelling out the terms of your partnership. If a partnership already exists, that does not eliminate the need for an agreement. If a partner does not want to do this, that is big red flag.
3. Talk to your Oculus advisor to choose an appropriate business structure.
Discuss with an accountant what legal form your partnership should take. A simple partnership does not provide protection for either of the partner’s personal assets.
4. Consider a buy/sell agreement.
A buy/sell agreement can enable the business to survive partnership disputes. A “Buy/Sell” agreement spells out the terms by which one partner can buy the other out. The agreement should discuss ways of reducing of valuing the business, the method and timing of any payment and what insurance policies should be taken out to cover each partner’s life or incapacity.
Whilst it’s not required by law to have a written agreement to form a partnership, it’s recommended to protect each of the partner’s interests. So be very clear about the nature of the relationship before beginning to work with anyone.