NOVEMBER 6, 2020

A Business Partnership Is Like a Marriage

A business partnership is like a marriage. One attorney friend of mine once told me, you need to date before you get married.  My friend was talking about business partnerships and how to pick the right partner.  When a business partnership is formed, the parties are essentially tying their financial success together.  This is a significant thing.  You are likely filing taxes together, have some form of a relationship, and may need to make joint decisions.  This discussion doesn’t just pertain to formal partnership entities.  It also includes smaller LLCs, Corporations, Limited Partnership, and other variations.  Large corporations and other large entities may have some traits that are relevant to this discussion, but for the most part should be looked at with a slightly different perspective. 

Define Goals and Values Prior to Partnership 

When a group of people decide to partner, I strongly suggest that the partners have an honest in-depth discussion to ensure that goals and values are clearly understood.  Often a dispute within a partnership arises later down the line because the parties never fully understood their collective purpose and their individual opinions. 

Partnerships Are Financially Tied Together

Those partnerships are financially tied together. If one partner is not performing, all partners in the organization may be negatively impacted.  One good practice when you are forming a partnership, a LLC, or such, is to write out and sign a description of each of the respective individual’s roles and expectations.  Further, compensation should be discussed at this point.  People have many different methods to manage their money.  When one partner believes all excess cash should be saved within the company and another party believes the partner should pay out every penny of revenue; conflict is likely to follow.  

Disagreements in Business Partnerships

Regardless whether it is responsibilities or how money is spent, if the partners are not on the same page when it comes to decisions, conflict can arise.  Joint decisions need to be made in a partnership.  When you form the partnership an agreement should be put in place to determine how decisions should be made.  In a partnership, it is inevitable that there are disagreements.  As long as there is a reasonable method to settle the decision, the partnership can successfully navigate these disagreements.  Disagreement in itself is not a bad thing. 

Have a Plan BEFORE There’s Disagreements in Business Partnerships 

When a partnership is formed, a method to unwind the deal should also be established.  This is important to consider because not all partnerships work out.  If you don’t have a reasonable way to unwind a partnership, there is a likelihood that the company will fail when it is unwound.  It is a good practice to have in place a buy-sell agreement so that partners who wish to exit, can have that option.  Ideally this agreement will determine what to do with assets, customer lists, and so forth. 

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