Are you one of those people that can’t get enough of starting and building a new business? Are you ready to take on a new venture and think you want to bring someone or multiple people along for the ride?
Having a business partner is great for multiple reasons. But, having a successful partnership isn’t always as simple as finding the person you like to have a drink with. So, here are a few things to consider when starting your partnership that will likely put you in route to becoming a very successful and dynamic duo (or trio, or…)
Get to know the person or people you plan to go into business with. Owning and operating a business requires a lot of time and effort especially in the beginning. You will spend hours upon hours with your partner over the course of the business life so you want to know them as well as you possibly can. Dong your due diligence in the “getting to know you” phase can pay off huge in the long run. Find out what past businesses this person has been involved in, what their work ethic and style are, and of course don’t be afraid to ask the tough questions.
Think Long Term (even if the business isn’t long term)
When working with a partner it is imperative that you are both on the same page. Thinking long-term about the business and the vision each of you has for the business helps facilitate your “getting on the same page.” Even if this is a short-term partnership for the creation of one product, where do you see that product going 5, 10, 50 years down the road? Your vision for your business needs to be the same or at least similar to your partners, or what is the point? Parse out all of the options and paths your business might take and pick a direction you can both get behind.
Collaborate and Plan.
Before you sit down with an attorney to draw up any kind of partnership agreement you should sit down with your partner, and in your own words come up with the details. Decide on who will play what role, what is going to be contributed by each (money, sweat equity etc.), how will decisions be made, and what is the exit plan? When you sit down before any business gets started, you are more likely to have a collaborative mindset making for a better overall partnership. You want to think about how things will work out in a perfect world, and how they would work out the worst-case scenario. Make a decision on what you both want in regards to bringing in new partners, possibly selling the business, can you leave your half to your family if you die? Knowing how you plan to exit the business will allow you to set up everything else in a manner that aligns with that.
Pick the right business structure.
Picking a business structure is personal. You want a structure that allows you and your partner to accomplish all of your goals, including exiting the business on your terms. When picking an entity you want to consider the following. Is this a long-term venture? Do you want investors? Will any of those investors be from outside the US? Are you planning to hire employees? Is this going to be a private or public company? These are just a few of the things to consider when picking your entity. Find a tax professional and an attorney you trust, and sit down to determine what makes the most sense for all of your goals.
Contracts and Contracts
Once you have discussed the ins and outs of what you both want to formalize it with an agreement. This may be the partnership agreement or an LLC operating agreement depending on what entity you have chosen. Having a written enforceable agreement before the work starts is the number one thing you and any partner should have. A well-drafted agreement will minimize the time it takes to respond to any one of the multitudes of issues that can arise with business ownership. New opportunities and disagreements come out of nowhere, so be prepared. And, while you’re in the contract drafting mood, go ahead and get agreements in place for any third parties you will be working with once the business gets up and moving. It is always a best practice to have this taken care of before the action commences.
I hope you found this practical advice helpful! Good luck building your partnership and your business. As always, if you have questions, or need help feel free to email me at Shannon@montgomerypllc.com
Please note that this is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic