Although there are several less complicated and less painful ways for conducting business, partnerships are often a business form of choice. And though legally easy to establish, they often prove very complex from a relationships and even a business perspective.
Though I have known partnerships to work well, more often than not, they fall apart, destroying lives and businesses. One of the main reasons for this specifically are that partnerships are usually established when things are going well. You and your friend decide to start a business together. And based on mutually agreeable objectives and approaches at that time, things go well.
Unfortunately since things usually go well at the onset, people tend to not take the very necessary precaution of drafting a “breakup” agreement properly. The end result is that when things do not go as well, there is no clearly defined approach or agreement in place that will govern the process for resolution and dissolution of the business. Court often battles ensue and businesses and lives are destroyed, often beyond recovery.
If you find you must pursue a business of this nature I would suggest that you explore and consider at least the following important points:
1. Attempt to register a limited liability version of this business form if the country you live in permits this. It will prevent you from becoming liable for your partner’s stupidity.
2. Maintain control if at all possible. If you are able to maintain a controlling interest in the business (more than 50%) this will without a doubt be hugely helpful when you want to make decisions that your partners may not agree with. Equal partnerships often run into irresolvable differences, and so the partners and the business will suffer. If a larger equity option is not available make sure to entrench a veto right.
3. Maintain control over the money, even if a shared control. Since the business is primarily about money, losing control over the money means you lose control over the business. As such if you are able to, make sure that your signature (as a minimum) is required for any business expenses, commitments and contracts that are closed on behalf of the business, by any partner and under any circumstances.
4. Draft and sign a proper partnership agreement which will not only define investment, duties and responsibilities, but will also define the division of business assets in the event of things not working out.
In conclusion, if this is at all possible I would urge you to consider another business alternative. The potential exposure to you personally and professionally will often prove significant, and not worth the risk, even if it is your best friend.
I wish you all the best with your ventures and invite you to share your stories and comments here.