Starting a Business Partnership: 3 Must Follow Rules to Prevent the Business Divorce.

Starting a business  partnershipMy first business partnership ended a friendship of many years. I was only eighteen years old. Since then I’ve been in multiple business partnerships. 

I wish I knew then what I know now. 

Each of those partnerships broke apart, except, surprisingly, for the ones with my wife. And to be honest, I’m surprised the business deals with my wife haven’t caused us to divorce. 

Business partnerships are very similar to marriages, except there isn’t usually sex to hold the business together when times are tough.  

One study says that 50% of marriages end in divorce. I suspect business partnership are worse. Those are bad odds, so forming a business partnership without contingencies that it may end badly is naive. 

Here are 3 Must Follow Rules to When Forming a Business Partnership

Enter my guest Arlene Chandler.

Wanting to start your own company is a commendable desire, and finding someone to join forces with can leave you with only half of the responsibilities. That is, of course, assuming that all goes as planned and your partnership doesn’t suffer any ill fate.

While it’s natural to go into the business world with that feeling of invincibility, past examples will show you that the business road can be a long and bumpy one, and in order to protect both you and your partner from losing everything you’ve worked hard for, it’s important to make the following commitments.

Get a Lawyer 

Most partnerships are started with a great idea in mind and not much else. While you could very well come up with the next great invention worth millions of dollars, avoid being in such a rush to push it out that you fail to do some professional planning. 

Unless you have in-depth knowledge of the legalities of the business world, you’re going to want to hire a lawyer to serve as your adviser in order to protect your company. Tax issues, workplace regulations, partnership disagreements, etc. are all things that an attorney can help you keep in order to ensure that you’re running a clean and smooth line of business.

Draw Up a Written Partnership Agreement 

You and your partner might be fastened at the hip at the moment, but you’re both human and conflicts can arise; some obstacles are easy to recuperate from and others are nearly impossible, so it’s extremely important to plan for the worst case scenario from the beginning. 

To make it legally binding and fair to you both, a legal document is going to be your best bet, and it will prevent you both from ever feeling cheated or betrayed. After you hire your lawyer, decide who is responsible for what, how you will distribute profits and deal with financial losses, what method you will use for bringing in employees, and how you will handle it if one partner leaves the company or dies. 

You’ll want to cover how to manage any disputes and decide if you’d like to add a non-compete clause to your agreement. It might seem unnecessary to take all these precautions, but many business owners have been duped over due to lack of preparation.

Cover Yourself with a Life Insurance Policy 

A life insurance policy can help out a business partnership the same way it benefits family members or spouses; if something unfortunate were to happen to either one of you, you’d want to make sure that the company could stand strong against the unexpected event, and any business professional will recommend that founders of a company need to be covered to prevent the business from crumbling. 

You can use the payout to help hire a replacement to fill in for your partner’s responsibilities or buy back your partner’s interest in the company; all in all, an insurance policy helps guarantee the company’s continuation no matter what the uncertain future brings.

All businesses are conceived with excitement, enthusiasm, and optimism, but, as with anything in life, the future is never an exact replica of the initial blue print. While it’s true that the business world probably won’t turn you or your partner into ruthless, cutthroat individuals, you’ll protect yourself and your assets by planning for the worst and having a backup plan if anything goes south. What it all comes down to is making sure the time, money, and energy you put into your start-up are investments you never regret.

Arlene Chandler is a freelance writer who loves helping individuals plan their best possible future. When she’s not enjoying a good comedy over Greek cuisine, she writes finance and insurance advice for AAMI Life Insurance.

Comment rules: You must use a name in the name field. No business names or keywords. 

3 Replies to “Starting a Business Partnership: 3 Must Follow Rules to Prevent the Business Divorce.”

  1. Usually there are two basic reasons for writing a plan; you want a plan to enable you to run your business, or to show a source of funding the information about your business that they will insist upon before putting any money into the company.

  2. This episode REALLY struck a chord with me. I left a business partnership with someone about two years ago. It got ugly when I elected to leave, and we haven’t spoken since. The thing is, I still own 50% of the company. And we need to chat in order to figure out the next steps to selling my part of the company to her. Also, I’m still owed quite a bit of money (and I have yet to be reimbursed). I’ve tried to contact her, but she won’t respond. It might be too little too late, but I’d really love to put these principles into play when I talk to her. Unfortunately, I’m still angry and hurt at how things went down. Any suggestions for when a lot of time has gone by, yet your wounds are still fresh? I’m easily triggered by my former partner and want to make sure that I approach any conversation with your principles in mind.

    1. It’s interesting, and commone, Melva, how similar your experience with a business partnership mirrors those of people going through a divorce. 

      To answer your questions, my advice is to try to remove emotions and focus on the business side of things. In other words, “It’s all about the money.”

      Do a cost benefit analysis of pursuing any part of this deal, and once the emotional costs out weigh the benefits, it’s time to cut your losses. 

      Easier said than done.

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