The responsibilities that come with running a business are many, and some may fall outside your area of expertise. This is why you rarely see successful companies that rely solely on the support of one person. As your company grows, new challenges arise that could potentially slow or even halt its development as you figure out how to deal with them. In many instances, your best move may be to bring on a partner to offer added financial and/or professional support.
Why Form a Partnership?
The main benefit a business partnership offers is that it allows you to add to your executive team without having to formally restructure your company’s business classification. In fact, there is no formal process for bringing on a partner. This, however, can be both a blessing and a curse. While partnerships may be relatively easy to form, without anything in place to govern your agreement, you could potentially end up in a disadvantageous position. It’s because of this possibility that you should commit to creating a well-defined, written partnership agreement that clearly defines the relationship you and your new partner will have, what your roles and responsibilities will be, and how each of you will be compensated for your work. Your partnership agreement should, at the very least, address the following four topics:
- Business responsibilities: The level at which your new partner will be involved in your day-to-day operations will depend largely on the reason he or she was brought on. If he or she is solely an investor, then his or her role in running the company will most likely be limited. Indeed, such an agreement is typically termed to be a limited partnership. If the reason for your bringing on a partner is to help you with a certain project or initiative, then you don’t really have partnership. Instead, you have what’s known as a joint venture. As the name implies, these agreements are usually limited in scope to a single business venture. If, however, you’ve brought someone in to share in all of the duties involved with running your company, then he or she is considered to be a true general partner.
- Compensation: However, unless you have a written agreement in place that details your compensation structure, any partner you bring on is entitled to an even share of your company’s profits. This could place you in the unenviable position of doing all the work for your company, yet being disproportionately compensated. You should consider, then, creating a detailed salary and/or executive compensation structure based upon you and your partner’s level of involvement with the company.
- Liability: The only implied responsibility that comes with a general partnership is a duty of loyalty, which requires all partners act in the best interest of the company. Any liabilities that your partners accrue during your association are shared equally between you. The only exception would be if a limited partner files a limited partnership certificate outlining their liability limitation based on their investments. Thus, your partnership agreement should address the process of resolution of debts and liabilities between the members of your ownership group.
- Termination: You’ll also want to have a written agreement in place that outlines what your partner is entitled to if he or she chooses to limit or walk away from his or her role. This will not only address how your company’s leadership will be restructured following his or her dissociation, but also stipulate whether or not he or she retains responsibility for whatever obligations he or she assumed during his or her tenure. Bringing partners into your business can add both immediate and long-term value. However, given the impact that such a move can have on the direction of your company, this is certainly not a decision that should be made without first investing a great deal of thought and planning into it. Part of that planning must be clearly delineating the type of partnership being formed, as well as how to manage the move appropriately. If it’s well thought out and executed, you could reap untold benefits from such a decision.
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