You and a friend or family member have plans to turn that idea in to a small business. It’s a common occurrence in the business world but before you set out to be successful entrepreneurs, there are some legal and organizational matters to attend to first. Although you hope that the partnership never dissolves, you never know what the future holds making it essential that you prepare for the worst by taking steps to minimize a worst case scenario from happening.
Form a Partnership
Before you open your business, register your business with your state’s Secretary of State office. You can form an LLC but that isn’t necessarily the best option for you. Another type of business entity may be a better choice. Contact a business registration service for advice on which business designation is best for your business.
What’s the Division?
It might seem natural to divide the business with each partner having a 50% stake but what will you do if there is a disagreement in a key area of the business? If the business was built on your idea or you have more money invested, you should have more than a 50% stake in the business. This can be a tense conversation but even in a partnership, somebody should control the business if there is no board of directors.
Anybody who has worked with other people has heard the common compliant of somebody not working as hard as somebody else. Sometimes these problems arise because an employee is unclear of their duties or they’re working in areas that aren’t as important as others. Drafting job descriptions for each partner can keep these problems from arising later.
What if one of the partners later wants to leave the company, passes away, or becomes disabled? Plan for all of these events in the written partnership agreement. Specifically, how will the leaving partner (or the partner’s heirs) receive their stake in the company?
Focus on Strengths
History is full of promising companies that failed to execute because the partners couldn’t work together due to personality disputes. Treat your partnership like a marriage. Learn how your partner communicates, their strengths, their liabilities, and how you can use all of that information to construct a long-term positive relationship.
Partnerships combine the talents of two people for the benefit of one company. A well-executed partnership has proven to be a key to business startup success but just like a marriage, the greatest partnership can turn sour rapidly. Solve problems before they become something bigger.