Business partners can clash on a myriad of matters. If you are considering starting a new business with others, you need to set the ground rules and agree to some medium to long term plans first. You should also obtain expert advice before you enter into any business arrangement.
What are the benefits of starting the business together?
Ideally a partnership should bring together complementary but divergent skills and expertise so the business can achieve more than an individual could achieve on their own.
For example, one partner may have strong technology skills, while another may have sales and marketing expertise and a third may be an experienced manager and administrator.
Discuss your expectations
Your view of the world, your ethics and your dispute resolution skills will all be put to the test throughout the life of your partnership. Before you begin working together, it’s important to discuss your expectations and ask lots of questions about each other’s views.
You need to feel confident you share the same goals and have the ability to resolve conflicts as they occur. Some topics to cover during these discussions include:
- Your income expectations
- How long you expect it will take to make the business profitable
- The number of hours you are prepared to work each week
- If all partners are prepared to sacrifice weekends and evenings to grow the business
- The roles and responsibilities each partner will fulfil
- How will decisions be made and conflicts be resolved
- Your leadership styles and if they are compatible
- Each partner’s attitude to debt and risk
- What happens if one of the partners wishes to leave the business or dies
- If a partner behaves illegally or unethically, how will it be managed
Document everything and obtain expert advice
Discussing your expectations and agreeing on how to proceed may take some time but it is well worth the effort. The decisions you make will form the basis of your formal working arrangements and will help you determine whether you will work well together.
As you discuss and resolve various concerns, put them in writing. Then it’s time to make arrangements to meet with a solicitor who has expertise and experience in preparing partnership agreements.
- Your partnership agreement should also specify issues such as:
- Each partner’s ownership percentage
- Exit clauses for individual partners
- How much money will be required to start and operate the partnership
- The capital contributions required from each partner both now and in the future
- Distribution of profits
- How assets will be divided if all the partners wish to dissolve the partnership
- The responsibility of each partner for the debts of the business
- What happens on the death, significant illness or retirement of a partner
You will find a comprehensive checklist here http://www.tyler.com.au/legal-checklists/establishment-business-with-others covering the contents of a business plan, choosing a business structure and matters to be resolved before you begin operating the business.
Invest in planning
Like anything in life, the best results occur when things are well planned. It’s the same when forming a partnership.
Michael Tyler, the principal of Tyler & Co, is an Accredited Business Law Specialist. He is skilled in preparing partnership agreements and offers a broad range of services for new and established business owners. To speak with Michael call 02 9966 1799.
Please note: This article provides general information only and is not a substitute for legal advice. The team at Tyler & Co are happy to provide advice that is specifically tailored to your situation. Simply call us on 02 9966 1799 or visit our website http://www.tyler.com.au for more information.