Profitable Partnership Design
“Partnerships” in the broader, non-legal sense of multi-owner businesses, have given us some of the most successful businesses ever created: Google, Microsoft, Hewlett Packard, even Facebook (although this last one might be of better use as an example of how not to form a partnership!).
It makes perfect sense that partnerships would benefit founders. Starting and growing a successful business takes a lot of work. It’s much easier to get off the ground and flourish if you share the burden—both creatively and financially.
A partnership is a fantastic way to increase the likelihood of a successful business venture. With a guided discussion, advice on key formation issues, and a comprehensive and properly drafted partnership agreement, a partnership can outperform the best solo business venture. To ensure that your partnership has the best chance for success, these two steps are critical:
- Fully discuss the goals and expectations of each partner.
- Draft a written agreement that reflects that discussion and the particulars of your business.
Consider Your Expectations
To ensure that your partnership starts off on the right foot, be sure that you have a granular discussion with all partners about your expectations and goals. Some key parameters for this discussion include:
Whether members of a limited liability company or shareholders in a closely held corporation, a partnership’s potential for success is highest when the partners have identified and documented all of their expectations (whether known or unknown) and examined the critical business arrangements. This discussion is difficult and requires the guidance of an objective professional who understands the issues from experience.
Get It in Writing
It isn’t enough to talk about these issues, however detailed the discussion. Once the expectations of each partner have been openly discussed and agreed upon, these expectations must be put into a written agreement that has specific remedies for a breach and is signed by all of the partners. This partnership agreement sets the nascent business off on the right foot, with all the partners in agreement about its trajectory and goal.
Often the benefits of such an agreement aren’t entirely obvious to the business owners in the normal course of business. Unlike a commercial contact that may generate revenue for a business, a partnership agreement is more about long-term risk management. When things are going according to plan, everyone puts the agreement in the drawer and forgets about it. It’s only when a problem crops up that they break out the contract, blow off the dust, and begin to read.
Eventually, some problem will pop up, whether small or large. Without a documented way to handle it, this situation will become untenable. Seemingly minor disputes between business partners can cost $70,000 or more to see through arbitration and well over $100,000 if litigation ensues.
How to Ruin a Good Thing
Many founder’s first impulse is to go online and search for a “partnership agreement template” or “sample shareholders agreement.” A word of warning: A partnership agreement is not one-size-fits-all. You, your partners, and your business are unique, and your partnership agreement must be tailor-made to your business and your goals, not the other way around.
A fill-in-the-blank form downloaded from the internet or bought at an office supply store is an off-the-rack suit that just won’t fit your multi-owner business quite right. At the end of the day, you’ll never be able to achieve the nuanced and comprehensive protections that you need by this means.
Your Path to a Successful Business Partnership
Learn the insider secrets to building strong business partnerships and the fundamental role a comprehensive agreement plays in the success of a multi-owner business.
Download a free copy of our book!
Building Better Business Partnerships
Here at Alexander Business Law, we focus exclusively on business-related legal matters. We have advised business owners and entrepreneurs for over 25 years on partnerships and partnership agreements, and we have distilled that knowledge into our exclusive Partnership Design System.
We guide you and your partners through a detailed discussion of the 21 parameters that are vital to the long-term health and profitability of every new multi-owner business. We’ll create a fully customized partnership agreement for your business, and you’ll hit the ground running, confident about the future of your investment
Our unique 4-step system will:
- Guide a discussion of the 21 key partnership parameters,
- Build a strong foundation for your new business partnership,
- Create a comprehensive written agreement understood by all the partners,
- Increase the chance of success for your business partnership!
Help ensure you can start and grow your business successfully now and protect the business and your investment in the future. Call us at 407-649-7777 or email a team member to schedule a Partnership Design Session now.
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