Approach finding a business partner as you would a combination spouse/day care provider. A partnership is a long-term covenant between two (or more) people. You will spend a lot of time planning major business events with your partner and need to be able to get along with them.
Your business is something you gave birth to and will have to nurture to help it grow and be successful. You want a partner that will approach your business with the same level of enthusiasm and commitment that you have, but who also shares the same business "parenting" philosophies and expectations.
1. Find a Partner That Shares Your Values, Entrepreneurial Spirit, Work Ethic and Vision. Of all the things to look for in a partner this is probably the most important. You will need to be able to communicate effectively with your partner to make decisions, set goals, and drive the business forward. If you partner with someone that is reluctant, combative, distracted, unintelligent or unable to consider your viewpoint it will be harder for your business to be successful.
2. Find a Partner That Can Bring Skills and Experience to The Business
A good business partner should have skills that support and compliment your own. No single person is a master of all things in business. If you have great interpersonal skills but poor business finance skills, consider a partner who understands business accounting. The more skills you and your partner bring to the business together the easier it will be to start, plan, grow, and run your business. If your partners look to you for all the answers you are not in a partnership that is structured for success.
3. Look For a Partner Without A Lot of Personal Baggage
If your partner has serious challenges in his/her personal life it may carry over into the business. It is nice to be willing to give someone a chance, but running a small business takes focus, money, time, and tremendous energy. If your partner is dealing with one personal crisis after another or if your business partner is never around do to personal issues or another job you may find yourself carrying the weight of the business.
4. Find a Partner That Can Offer Resources and Credibility to Your Business
It is great to have a business partner that has financial resources, but there are other contributions a partner can bring to the business that can be just as valuable. A partner with a strong business network, industry connections, client list, or certain credentials and expertise can also increase the value of your business and improve your chances for achieving long-term success.
5. Choose a Partner That Practices Good Personal and Business Ethics
Only enter into partnerships with someone you can trust. Look for someone who values honesty and practices good personal and business ethics. A poorly chosen business partner may end up stealing from the company, taking your ideas, upsetting your clients, or breaking laws that could get your business into legal trouble.
6. Choose a Partner That is Financially Stable
Whether or not your partner contributes financially to the business is less important than if your potential partner is in dire financial straits. Someone in the middle of a financial crisis may not be the best choice to go into business with for a variety of reasons. Money, asset, and time management skills are critical for small business entrepreneurs and someone who has grossly mismanaged their personal or business finances may not have the skills, organization or discipline to make a business partnership work. Worst case scenario, they may even look for ways to steal from your business to solve personal financial problems.
7. Respect: A Necessary Element to Forming a Successful Partnership
You should never partner with someone that you do not respect. The main purpose in forming a partnership is to achieve success as a team. You may not value the opinion and efforts of someone you do not respect at least on a professional level. You also want to partner with someone that will show you respect as a partner, business professional, and as the founder of your business.
Tuesday, September 14, 2010
How to avoid problems with partnerships
Many small businesses are partnerships. Yet circumstances and ambitions change, partners fall out or pass on. Without a good partnership agreement things can get acrimonious. Here’s how to protect yourself from the very start.
A partnership is a legal trading entity that is formed automatically when two or more people run a business, possibly sharing the workload and/or investing capital to get things going.
You can also find yourself unwittingly in a partnership if you run a business with somebody but don’t employ them (often the case with husbands and wives).
You don’t need a written agreement to form a partnership but it is wise to have one drawn up and checked by an attorney.
Choosing your partner
Naturally it is important to choose your partners carefully. But how well do you really know them? Will they work as hard as you? Might they run up large bills? Do you have the same long-term goals for the business and your roles in it? Do they have the same amount of time and capital to invest as you?
There are other pitfalls for partnerships. For example, there is no limit to their liability. Moreover, partners are each responsible for business debts incurred by other partners - even if these are not agreed.
However, a new type of trading status – a limited liability partnership – offers protection from personal bankruptcy and from a rogue partner acting with out authority, with all the tax advantages of trading as a partnership.
The types of partnership available
There are fives main types of partnership:
Equity partners contribute capital to the business and share in the profits and losses;
Salaried partners receive a salary but are unlikely to contribute capital;
Sleeping partners take no part in running the business, though they may contribute capital and receive a salary;
Limited partners, where the liability of one or more (but not all) partners is limited to the amount of capital they invest. Limited partners must be registered at Companies House;
Limited liability partnerships where the business, not the partners, have legal liability to third parties. This type of partnership must also be registered at Companies House.
The legal position
Partnerships are covered first by terms set out in a partnership agreement. If there is no written agreement, or particular points are not covered in it, the relevant partnership Act come into effect.
The Acts are quite arbitrary and their provisions may not always seem fair. For example, the Partnership Act 1890 states that partners are entitled to share equally in the capital and profits of the business. But, if one partner has put more time or capital into the business than the other(s), you probably wouldn’t want to share profits equally.
And under this Act, a partner can withdraw immediately, without giving notice. This could be awkward because they may insist on the return of their capital contribution, which may force the business to close down.
So you may want to over-ride the rules in the Act to reflect your situation now and in the future. This is why a good agreement is so important.
Ten things partnership agreements should contain:
1. The basics
The partnership’s name, address and the nature of its business. When it started and when will it end - if applicable.
2. Money
How much capital each partner invested.
3. Profits and pay
How profits and losses are to be shared. Will partners also receive a wage? How will additional investments affect shares? How can these rules be changed if, say, one wants to work part-time?
4. The bank account
The details of the partnership’s bank account, including:
Who can sign cheques;
When two or more signatures are required on cheques;
How much money each partner can withdraw a month. Consider limiting this, as you don’t want to find you have run out of working capital.
5. Division of responsibilities
Who does what? What can and can’t partners do without each other’s consent, including what commitments or expenditure can be made?
6. Time off
Specify precisely the length and frequency of holidays.
7. Incapacity or death
What happens if a partner is temporarily incapacitated through long-term illness, say? They will still be entitled to a share of the profits so it’s sensible to stipulate a time limit. What happens if a partner becomes permanently unable to continue through ill health, insanity or death? A wise precaution is for partners to take out life insurance on each other to provide a fund to buy out their share.
8. Withdrawal
How much notice must partners give if they want to withdraw? How will the other partner(s) finance buying their share? Can the leaving party sell to an outside party?
9. Disputes
Settling disputes in court is expensive. You can probably avoid this by including a clause stating that all disputes will be resolved by arbitration. If you belong to a trade or professional body, they will nominate an arbitrator, or disputes can be referred to the Institute of Arbitrators.
10. After a partner leaves
It is important to specify in the agreement what is to happen if a partner leaves, or if you dissolve the partnership, vis-à-vis assets, goodwill and capital contributions. This is a complicated area and one in which you will need good legal advice.
There are other provisions you may like to include in your agreement (some may relate to the specific type of business). If a partner leaves the partnership, for instance, you may wish to take steps to prevent them setting up in competition - although these may be difficult to enforce.
Never too late
The chances of a business partnership surviving increase greatly if everyone knows exactly where they stand, both in the good times and in the bad. If you are in a partnership and have no partnership agreement, sort one out today, even and especially if you are married to your business partner.
A partnership is a legal trading entity that is formed automatically when two or more people run a business, possibly sharing the workload and/or investing capital to get things going.
You can also find yourself unwittingly in a partnership if you run a business with somebody but don’t employ them (often the case with husbands and wives).
You don’t need a written agreement to form a partnership but it is wise to have one drawn up and checked by an attorney.
Choosing your partner
Naturally it is important to choose your partners carefully. But how well do you really know them? Will they work as hard as you? Might they run up large bills? Do you have the same long-term goals for the business and your roles in it? Do they have the same amount of time and capital to invest as you?
There are other pitfalls for partnerships. For example, there is no limit to their liability. Moreover, partners are each responsible for business debts incurred by other partners - even if these are not agreed.
However, a new type of trading status – a limited liability partnership – offers protection from personal bankruptcy and from a rogue partner acting with out authority, with all the tax advantages of trading as a partnership.
The types of partnership available
There are fives main types of partnership:
Equity partners contribute capital to the business and share in the profits and losses;
Salaried partners receive a salary but are unlikely to contribute capital;
Sleeping partners take no part in running the business, though they may contribute capital and receive a salary;
Limited partners, where the liability of one or more (but not all) partners is limited to the amount of capital they invest. Limited partners must be registered at Companies House;
Limited liability partnerships where the business, not the partners, have legal liability to third parties. This type of partnership must also be registered at Companies House.
The legal position
Partnerships are covered first by terms set out in a partnership agreement. If there is no written agreement, or particular points are not covered in it, the relevant partnership Act come into effect.
The Acts are quite arbitrary and their provisions may not always seem fair. For example, the Partnership Act 1890 states that partners are entitled to share equally in the capital and profits of the business. But, if one partner has put more time or capital into the business than the other(s), you probably wouldn’t want to share profits equally.
And under this Act, a partner can withdraw immediately, without giving notice. This could be awkward because they may insist on the return of their capital contribution, which may force the business to close down.
So you may want to over-ride the rules in the Act to reflect your situation now and in the future. This is why a good agreement is so important.
Ten things partnership agreements should contain:
1. The basics
The partnership’s name, address and the nature of its business. When it started and when will it end - if applicable.
2. Money
How much capital each partner invested.
3. Profits and pay
How profits and losses are to be shared. Will partners also receive a wage? How will additional investments affect shares? How can these rules be changed if, say, one wants to work part-time?
4. The bank account
The details of the partnership’s bank account, including:
Who can sign cheques;
When two or more signatures are required on cheques;
How much money each partner can withdraw a month. Consider limiting this, as you don’t want to find you have run out of working capital.
5. Division of responsibilities
Who does what? What can and can’t partners do without each other’s consent, including what commitments or expenditure can be made?
6. Time off
Specify precisely the length and frequency of holidays.
7. Incapacity or death
What happens if a partner is temporarily incapacitated through long-term illness, say? They will still be entitled to a share of the profits so it’s sensible to stipulate a time limit. What happens if a partner becomes permanently unable to continue through ill health, insanity or death? A wise precaution is for partners to take out life insurance on each other to provide a fund to buy out their share.
8. Withdrawal
How much notice must partners give if they want to withdraw? How will the other partner(s) finance buying their share? Can the leaving party sell to an outside party?
9. Disputes
Settling disputes in court is expensive. You can probably avoid this by including a clause stating that all disputes will be resolved by arbitration. If you belong to a trade or professional body, they will nominate an arbitrator, or disputes can be referred to the Institute of Arbitrators.
10. After a partner leaves
It is important to specify in the agreement what is to happen if a partner leaves, or if you dissolve the partnership, vis-à-vis assets, goodwill and capital contributions. This is a complicated area and one in which you will need good legal advice.
There are other provisions you may like to include in your agreement (some may relate to the specific type of business). If a partner leaves the partnership, for instance, you may wish to take steps to prevent them setting up in competition - although these may be difficult to enforce.
Never too late
The chances of a business partnership surviving increase greatly if everyone knows exactly where they stand, both in the good times and in the bad. If you are in a partnership and have no partnership agreement, sort one out today, even and especially if you are married to your business partner.
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