Partnerships can be a wonderful business venture. There is a great advantage in being able to pool the talents, resources and finances of multiple people into one business. However, there are a variety of factors you need to consider before teaming up with someone, in order to ensure your partnership will be a success.
How will you make important decisions?
When you enter into a partnership, you need to determine how important decisions in the business will be made. Will you each make important decisions on your own? Will there need to be unanimous agreement on important decisions? How will you determine which decisions are important? Each day, you will likely face important decisions regarding finances, hiring, operations and more. It is important to discuss a plan to make these decisions before entering into a partnership.
Do you have a partnership agreement?
It can be hard to think about the end of the partnership when it hasn’t even begun. However, agreeing on the terms of the dissolution is probably the most important aspect of starting a partnership. While you do not necessarily need a partnership agreement, it is extremely risky to enter into a partnership without one. Partnership agreements provide a guide for how the business will run, as well as how the partnership will end.
Partnerships can end for a variety of other reasons besides partners failing to get along. If the partnership is growing, you might want to become a corporation. Without an agreed upon plan for dissolution, you could ruin the good relationship you have with your partner.
How will compensation and profits be distributed?
No one likes talking about money, but it is important for partners to discuss major financial decisions before entering into a partnership. Partnership compensation and distribution structures can look vastly different, depending on what works best for the partners. Whichever structure you choose, each partner should feel like their salary and distributions reflect their service to the business.
If you are entering into a partnership, consider speaking with a trusted business attorney to make sure that you are following the correct steps for starting your business.