Savvy entrepreneurs often pool their skills and resources to increase the chances of success. Unfortunately, when a partnership is formed under the wrong conditions, this pathway to success can quickly become a business owner’s worst nightmare. Learn how you can avoid the most common business partnership killers in the following sections, and discover how a seasoned business law attorney can help you proactively mitigate the possibility of a failed partnership.
Partnerships Born from a Lack of Money or Skill
In an ideal partnership, business owners have “synergy,” or a way that they complement one another. As an example, one partner might have the marketing tools and resources that the company needs to be successful while the other has a knack for thinking “outside the box.” Unfortunately, if one partner “needs” another in order to achieve success – perhaps one person has the idea and marketing skills while the other possesses the capital to start the business – any potential benefit of a partnership may be lost. To avoid this issue, partners are encouraged to share expenses, not capital. Also, you should never give away something that is yours (i.e. information, ideas, etc.). Instead, create an iron-clad contract that can protect your ideas and concepts, even if the partnership ultimately fails.
Splitting the Business 50/50
Doing a 50/50 business split might seem like the best way to avoid conflicts, but it can actually do you more harm than good. In fact, successful businesses are rarely split right down the middle. Instead, most businesses have a 60/40 or 70/30 split, where one party (typically the one with the idea, but not always) owns more of the company. Not only does this protect you, should the business end, but it also gives your customers a “point of contact,” a person who is responsible and accountable for operations.
Partnerships Without a Legal Contract
While as contract is not needed to start a partnership, entrepreneurs are highly encouraged to ensure they have one before embarking on a shared venture. Able to protect your business and ideas while also decreasing the risk of problems if the business fails, your contract should define every aspect of the partnership – from how responsibilities and shares are split to how the partners can exit the business if they so choose. An experienced business law attorney can explain your options and assist you in developing a contract that benefits and protects all parties.
At Stock, Carlson, Oldfield & McGrath, we prioritize the future success of our clients. Backed by more than 40 years of legal experience, our DuPage County small business attorneys can assist you with all aspects of starting your business. Schedule your personalized consultation to get started. Call 630-665-2500 today.