Starting a new business with a partner sounds like a great idea. When partnerships flow smoothly, they ease the loneliness of running a business, giving you someone to brainstorm with, as well as to share in the inevitable ups and downs of any new venture.
But as appealing as the thought of launching a business with a buddy can be, it does come with some complications. It’s important to protect yourself from the start. Here are a few steps you should take before officially announcing you’re open for business.
You may already have someone in mind, but it’s important to make sure you’re starting a business with the right person. That friend or family member you love spending time with may not be the best fit, especially if you know nothing about how the person manages finances or will interact with clients.
Structure Your Business Correctly
Before you can register your business, you’ll need to choose a structure. You have three choices:
- General Partnership
- Limited Partnership
- Joint Venture
A general partnership is typically best unless this is a short-term venture. A general partnership will distribute profits, liability, and management duties between partners equally, or as documented on your partnership agreement.
Put Everything in Writing
Documentation is everything when it comes to protecting yourself in business. You should both sign a legal partnership agreement detailing the terms of your arrangement. This includes the conditions under which the partnership can be dissolved and how assets will be divided if such a split happens. It should also outline each partner’s responsibilities and how profits will be split throughout the duration of your business.
Have a Plan for Mediation
Ideally, you and your partner will be able to resolve any disagreements quickly. However, there may be times when you simply can’t come to an agreement. Having a plan for mediation can mean the difference between working it out and splitting up. A mediator simply serves as a neutral third party to listen to each partner’s concerns and make suggestions. You can choose a mutually-trusted colleague or have a professional mediator lined up in case the need should ever arise.
A business partner can make your journey as an entrepreneur easier. As long as you have solid paperwork in place, you should be protected against anything your partner does that might bring action against you. Chances are, you’ll never need to use that legal documentation, but having it can help you sleep a little better at night.