Dear M & M:
My friend and I get along real well. We have worked together at the same company for several years. On the weekends our families get together often. We never seem to argue and our tastes and beliefs are very similar. We want to form a partnership, go into business together, and don’t know where to start. You know the old adage two heads are better than one.
As the Rocket Lawyer says, “Clear communication and a solid legal foundation help get your business off to the right start. Whether you’re going into business with a friend or business colleague, you’ll want to define all the ins-and-outs of how you’ll run the partnership.
A Partnership Agreement allows your business to prepare for common business scenarios, plan how a partner may leave, or how to handle disproportionate partnership contributions.” Everyday misunderstandings besides writing a solid business plan for the company you would like to start, the first thing one should do is to draft a partnership agreement.
Before you go into business with someone you should discuss what happens if you go out of business. Things happen in life that could affect your business. Your partners spouse could be transferred to another town, one party decides that this is not for them, or one of the parties has an accident and is unable to continue.
Many things need to be agreed upon in writing before you proceed with anything. What are the duties of each partner? Who is responsible for what? What is the compensation for either party if the company doesn’t make any money in the first six months? To start the venture, what collateral will each party bring?
If additional capital is required six months down the road how much each party can contribute? Who makes the decision if one partner wants the walls green and the other party wants them painted red? What is the method to resolve disputes? Try to think of any possible situations that might come up, write them down, agree to a solution, and sign the document.
The best way to remain friends and have a successful partnership is having each partner understand what is expected of them from the beginning. Remember a partnership can take on many forms (general partnership, limited partnership, or a limited liability partnership).
Once you have your partnership agreements ironed out seek the advice of an accountant and an attorney to explain the advantages and disadvantages of each form of partnership. Most attorneys and accountants offer reduced fees for the first hour. Establishing a partnership agreement is a good first step.