Sunday, February 04, 2001

Be wary before entering partnership

By Rhonda Abrams
Gannett News Service

        Sears and Roebuck, Hewlett and Packard, Ben and Jerry. Great partnerships can make great companies. Working with a partner can both help you grow your company and keep your mental health.

        It's a huge relief to have someone with whom to share ideas, expenses, setbacks and successes. Even if you have terrific employees or supportive friends or family, you can't discuss issues with them the same way you can with a partner.

        In a partnership, there's increased strength from having a balance of complementary talents. You, for instance, may be a terrific “outside” person: getting sales, marketing, keeping customers satisfied. Your partner may be a terrific “inside” person: making certain bills are paid, the product produced, the employees doing their jobs. The same is especially true in technology companies, with one partner bringing the technological strength and the other the managerial capabilities.

        But be careful. Partnerships are often filled with peril: Friendships fall apart, resentments grow, decisions get put off.

        So deal with a partnership the way you would any other aspect of your business — with a plan, discussions and a written agreement.

        First, recognize when you've got a partner. If you and a friend decide to start selling used golf balls on the Internet together, in the eyes of the law, you've become partners. You may not have drawn up an agreement, but each of you may become responsible for the bills and obligations of the company, and you each may start to acquire rights in the company.

        So as soon as you start working with someone else, sit down and figure out how you're going to work together.

        Remember Rhonda's Rule: Discuss issues before you have problems.

Sign a contract
               The best way for things to stay friendly is to have a clearly defined partnership agreement before you begin. You have probably chosen partners because you like and trust them and think you can work well together, but as time goes by, misunderstandings can be common, disagreements arise, and personal and business goals diverge. The best way to prepare is to have a legally binding contract spelling out the terms of your partnership. Some issues to discuss:

        • What is the ownership division? Who owns what percent?

        • What jobs/responsibilities does each partner have?

        • How will general business decisions be made?

        • What decisions does each partner have final authority on?

        • How will you communicate on a regular basis?

        • How will serious disputes be resolved?

        • What happens if one partner wants to leave the business? Move?

        • What happens if one partner wants to sell the company?

        • What happens if a partner dies? Becomes disabled?

        • What if you want to bring on an additional partner?

        • Can partners work for any other company or do any other work on the side?

Talk to a lawyer

               If you are going to incur substantial liabilities, you should also discuss your corporate form with a lawyer. A simple partnership does not provide much protection for your personal assets, and you may want to incorporate or become a limited liability partnership or company.

        It's also advisable to work out a “buy/sell” agreement spelling out the terms by which one partner can buy out the other. You may need to buy life insurance or establish other provisions making it possible to buy out the partners' heirs at a fair price — you don't necessarily want to be running the business with your partners' spouse or child.

        A partnership can be a simple arrangement, with all parties actively engaged in running the business and sharing liabilities. But there's another kind of partnership: a “limited partnership.” If you want to raise money from others who won't be involved in running the business, and they're willing to invest in your company, you can form a “limited partnership.”

        This limits investors' financial exposure to just the amount they're investing and doesn't make them liable for the debts of the company. A limited partnership should certainly be arranged with an attorney.

        Partnerships can be terrific, but they can often be stressful, and when things go wrong between the partners, it can often mean the demise of the whole company. Just remember Sonny and Cher.

        For free business tips, register at or write her at 555 Bryant St.,No.180, Palo Alto, CA 94301.


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