A partnership can be handy, but be aware of drawbacks
By Rhonda Abrams
Gannett News Service
Sears and Roebuck, Hewlett and Packard, Ben and Jerry. Great partnerships can make great companies. But in both my consulting practice and my own experience, I've seen the perils of partnerships.
If you're starting or expanding a company, working with a partner can be great. After all, it's tough and lonely to build a business by yourself. It can be a big help to have someone with whom to share the expenses, enthusiasm, setbacks and successes.
Moreover, in a partnership, there's increased strength from having a balance of complementary talents or personalities.
You, for example, may be a terrific "outside" person for securing sales, marketing and networking. Your partner may be a terrific "inside" person for making sure bills are paid and product finished. Or you may be terrific at creating the product — whether it's software or sportswear — and your partner may have the necessary managerial capabilities.
Yes, there are many advantages to partnerships. But be careful.
Once the initial enthusiasm of starting a business begins to wane, it's easy for tensions and resentments to grow. If you're the outside person, your partner may view the time you spend on business lunches, trade shows and sales calls as just fun and games. Meanwhile, you may think that since you're the one bringing in all the customers, why should you split all the cash with a partner just doing mundane office work?
Over time, even in good partnerships, the partners' goals for the company may differ or the time you each have to devote to the company may change, creating conflicts.
When partners can no longer work well together, the business can fail completely. It certainly will suffer. So deal with any partnership in a formal and businesslike manner:
1. Recognize when you've got a partner. You do not need a written agreement to be a partnership in the eyes of the law. If, over a beer, you and a friend decide to make up some bottles of your special salsa and sell it at a street fair, you may have become partners. Your friend may acquire rights in your salsa recipe and you each may be responsible for all bills and obligations. So be very clear about the nature of the relationship before you work with anyone.
2. Have an in-depth discussion. Before you begin to work with any partner, sit down and thoroughly discuss these issues:
3. Draw up a written partnership agreement. Once you've discussed those issues, go to an attorney to draw up a legally binding contract, spelling out the terms.
4. Consider your corporate form. Discuss with your lawyer what legal form your partnership should take. If you're going to assume many liabilities, a simple partnership does not provide much protection for your personal assets. Instead, you may want to incorporate or become a limited liability partnership or company.
5. Consider a buy/sell agreement. That spells out the terms by which one partner can buy the other out. In the event of a dispute or differing goals, a buy/sell agreement can enable the company to survive. Discuss ways — such as purchasing life insurance — to buy out a partner's heirs in the event of death or disability. You may not want to run the business with your partner's spouse or children.
Partnerships can be terrific. But when things go wrong between those involved, it often can mean the demise of the whole company. Just remember Sonny and Cher.
