| Starting a business with a partner can be a great | | | | Balance of Power |
| option. Each of you can bring different resources to | | | | Often, new partners assume that they will be able to |
| the table, improving the company's overall chances to | | | | operate everything by consensus -- if they don't both |
| succeed. You have someone to bounce ideas off of | | | | completely agree then the answer is no. While this |
| and to discuss alternatives with. You are sharing the | | | | sounds very equitable and fair, it usually turns out to be |
| risk, and potentially the reward with someone you | | | | a bad idea, especially in cases where one partner |
| respect enough to join forces with. But the honeymoon | | | | wants a change and the other doesn't. In that case, no |
| period doesn't usually last forever and the realities of | | | | decision is a decision. |
| struggling through a startup will reveal themselves soon | | | | It is better if there is one partner with the power to |
| enough. Talking through the optimistic, success potential | | | | make certain decisions. One way to handle this is to |
| of a business idea is easy, but partners need to cover | | | | categorize decisions by role, such that whoever is |
| the negative possibilities and the rest of the details up | | | | responsible for that role also has final say on related |
| front as well. | | | | issues. And, you can add a provision that limits the |
| Discussing the details can be uncomfortable for | | | | expenditure amount of single-person decisions. For |
| business partners. Often, they have dissimilar | | | | example, perhaps any decision that result in an |
| personalities and communication styles (an advantage | | | | expense of over $25,000 requires approval of both (or |
| in most other areas of the partnership), and thinking | | | | all) partners. |
| about what could go wrong is rarely a fun | | | | Profit Distribution and Other Pay |
| conversation. However, by working through these | | | | With an LLC, the profits can be distributed in any |
| issues before you launch, you not only save yourself | | | | proportion, regardless of the ownership interests |
| from possible serious conflict later, but you may also | | | | reflected in the organization paperwork. Be sure |
| discover some obstacles and threats to avoid over | | | | BOTH parties are comfortable with the decision. And, |
| the life of the venture. | | | | consider other pay options, such as putting one or both |
| Putting together a comprehensive partnership | | | | on salary for their day-to-day work or using special |
| agreement is a necessity before you get started on | | | | distributions to cover special situations (where one puts |
| the new business. Each party needs to be clear on | | | | in more work than the other, or to repay an inequitable |
| their own roles and responsibilities within the | | | | startup capital contribution). |
| organization, as well as their share of the payoffs. The | | | | Exit Strategies |
| right answer to every issue depends entirely on the | | | | Eventually, one or the other of the partners is likely to |
| particular situation of your partnership. It is important | | | | want (or need) to get out of the business. Discuss the |
| that both parties be open and honest in their opinions | | | | options for exiting the business, how the ownership |
| and perspectives, and that each be willing to listen to | | | | shares will be paid off, whether selling to an outsider |
| the other's arguments. Honestly, if you have trouble | | | | will require approval and the like. Your partnership |
| getting through a simple partnership agreement, that's a | | | | agreement should include both ways for a partner to |
| huge red flag for the future of your working | | | | leave voluntarily and for removing a partner |
| relationship! | | | | involuntarily. Finally, include a provision that describes |
| Some of the topics that absolutely should be covered | | | | what happens in the event of the death of a partner. |
| within the partnership agreement include: | | | | This discussion is absolutely necessary, because when |
| Roles | | | | it's time to go your separate ways, you will be eternally |
| Each partner should be responsible for separate roles | | | | grateful that you have already agreed to the basic |
| within the business. Just saying, "Oh, one of us will | | | | terms. |
| handle the accounting" is a bad idea...one person should | | | | It is very common for new partnerships to be |
| be the final accountable individual for every critical task | | | | concerned about what is "fair" to each member. |
| within the business. Obviously, taking on the roles that | | | | Unfortunately, there are no right answers, the best |
| each has the most experience with makes sense, but | | | | agreement for you depends on what you and your |
| there are likely to be some areas in which neither are | | | | partners work out. However, it is essential to get this |
| particularly skilled. In these cases, someone needs to | | | | done as early in the life of the business as possible. Be |
| step up and learn the basics, even if you ultimately | | | | open, be honest, and hammer out an agreement that |
| agree to outsource the specific task. | | | | makes you both comfortable. |