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10 Points to Consider in a Small Business Partnership
Before you enter into a small business partnership, you need to consider where misunderstandings and disagreements may arise in the future. In order to minimize this possibility and to provide for structure in the event it occurs, you should consider these 10 points: 1. What type of business are you going to have? This includes not only the original idea, but the potential side marketing that you could do. For example, if you’re opening a sporting goods store, will you also provide things such as golf lessons or triathlon training to your customers? Know this in advance in order to avoid disagreements later.2. What will your business structure be? Are you going to have a general or a limited partnership? If a limited, who will be the general partner(s) and what will the business form be for that person or entity? Everyone should have a solid understanding of the extent that they will be liable for business obligations prior to entering into any small business partnership agreement.3. What will be the initial contribution of each partner? Here, you’re not only considering cash, but also expertise. If one partner’s main contribution is not money, but their knowledge, this should be understood and spelled out. 4. How will disputes be settled? In the unfortunate event you and your partner(s) do not agree, how will the matter be decided? Does one person hold the final say, or is it by vote (if more than 2?) Don't get yourself--or your business--in the situation where you are unable to move forward because partners can't agree.5. How will the profits and losses be shared? Will it be by shares in the company, or some other method? What about rolling profits back into the business to expand? You should consider, now, how this will be determined.6. What will each partners pay and/or compensation be? This is not exactly the same as profits. The difference is that pay is a set amount, while compensation could include both pay and profits, or some other perk that the company provides.7. What will happen if a partner becomes incapacitated or dies? You need to consider how the business will continue in the event this occurs, as well as what happens to that partner’s share of the business.8. What provisions are in place to make changes to the partnership, or to dissolve it altogether? Things change. How will you roll with the times?9. What restrictions will be placed on partner authority? This includes not only making decisions on behalf of the business, but also on expenditures. Will you provide that any expenditure over $1,000 be approved by all partners? $5,000? Know this in advance.10. If you decide to dissolve the partnership, how will the assets be distributed? Do you seriously want to figure this out at a time when it is LEAST likely you will be able to agree about what is fair? Do it now, while minds are more reasonable....Knowing all these points in advance, deciding how they will be dealt with, and getting them in writing, can be one of the most important business decisions you make. In fact, if you cannot agree now as to these important issues, what makes you think your small business partnership will be successful in the future? Don’t underestimate the consequences of not doing it!
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