Have This Conversation with Your Business Partner

Business Partner

The decision to open and run a Box with a business partner is an exciting one. It’s hard to find a person who shares in your vision, who’s trustworthy, and who has the type of dedication it takes to open and manage a new venture. So if you’ve found the ideal partner, then working and growing a business together should be a rewarding and successful undertaking.

But as anyone will tell you, choosing a business partner is one of the most important decisions—if not the most important decision—you’ll make as a new business owner. Clearly there are many valid benefits to co-ownership, but those benefits are quickly undermined if partners don’t hash out certain key elements of their business relationship. Even when both owners have the best intentions in mind, making assumptions about your partner’s intentions or avoiding tough conversations sets the groundwork for a difficult business relationship.

With so much at stake, co-owners should establish the key elements of their business and legal structure from the outset, and create a roadmap for how they intend to handle their business operations. While there’s no one-size-fits-all approach to establishing a solid business foundation, there are a few key issues every partnership should consider.

  • Establish a Corporate Structure. One of the first and most critical steps founders should take is establishing a corporate structure. The benefits of business entity — like a limited liability company (LLC) or a C- or S-Corporation — are many. With this structure comes limited liability, tax benefits, and an opportunity to set out the legal guidelines that govern the business and the partners’ relationship, among other things.
  • Clarify Ownership. Business partners should not simply assume that the profits (or losses) of their business will be split 50/50. One partner may expect to own a greater share of the business because she contributes more initial capital, or because she intends to be a more active participant in the day-to-day operations. Whatever the case, partners should not assume ownership rights and should clarify this key point from the outset.
  • Rights and Obligations. Partners should be clear on who has the right to take certain actions on behalf of the company. For example, who has the right to bind the company, incur debt, hire and fire, and make other important business decisions? Similarly, general obligations should be spelled out — who will be handling the company financials, day-to-day operations, programming, and relationships with employees or independent contractors. The answers may seem obvious to you, but they may not be so obvious to your partner.
  • Contemplate Both Favorable and Unfavorable Contingencies. Partners should discuss the terms on which they can bring new partners into the fold, how to resolve disagreements on key business issues, or how the business will be “wound up” if the partners choose — or are forced to —dissolve. Clearly, it’s not fun to contemplate the latter two examples, but as a responsible businessperson you must consider how the company will handle these situations.

These are just a few key issues partners should iron out, regardless of whether you and your partner are just starting or have been co-owners for years. These issues generally are memorialized in a written document called an operating agreement — for an LLC — or bylaws — for a corporation — and can be drafted by a small business attorney. Think of this document as the constitution of a newly formed company. Having these points in writing can help to avoid conflict, guide company decisions and provide owners with peace of mind.

Bottom line: Don’t assume that you and your partner are on the same page about key aspects of your business, and don’t avoid discussing difficult issues. The longer they’re left unaddressed, the greater the chance they’ll surface and spoil your exciting undertaking.

 

NOTE: None of the information in this article is intended to create an attorney-client relationship. This article has been prepared for informational purposes only, does NOT constitute legal advice and is not a substitute for seeking legal counsel from an attorney.

Drew Amoroso
Drew is the owner of Move Strategy, a consulting and education based company focused on helping fitness business owners grow and build their business. You can find him on Twitter and Instagram @fitlawdrew.