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Business partnerships can be quite a tricky venture. A single entrepreneur or sole proprietorship cannot possibly consider every flaw the business is going to face. He/she can also not come up with infinite business ideas.
On the other hand, a partnership business enjoys twice as many ideas, twice as many potential deals and twice as much strategic thinking. However, the same way, such a business enjoys twice as many opportunities, it’s the same way it will face twice as many challenges. The partners are prone to disagree twice as much, and the business will face twice as many future challenges.
Just like most relationships, most business partnerships start with optimism and the excitement of creating a new business venture. The excitement and optimism overshadow some vital questions one should ask before engaging in a partnership business.
This article will outline six proven ways to protect yourself when forming a business partnership.
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Pick the right partner
For starters, you need to choose the right partner. The person you choose as a business partner means a lot. Venturing into business with your partner or friend may sound like a good idea, however, in case something goes wrong between the two of you, the entire business may go down the drain. Also, going into business with someone who’s enthusiastic and has an aggressive personality about taking risks may seem like a good complement to your more conservative personality. However, radically opposing business ideas will ultimately clash in the long run. It is important that you choose someone with good business insight, reliable, reasonable and dependable for your business to flourish.
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Understand the Different Forms of Legal Partnerships
Different states or different countries have specific laws when it comes to the formation and dissolution of business partnerships. These laws have also outlined the different responsibilities of each partner. Generally, there are three forms of business partnerships that business partners can consider:
- General Partnership – This is the simplest form of business partnership. It is similar to a sole proprietor kind of business. In this kind of business partnership, the partners are required to open the business together and divide all duties and responsibilities equally.
- Limited Liability Partnership (LLP) – This form of business partnership is best for partners who are looking to have personal legal protection for their business. This means the liabilities of the business cannot be extended to the partners.
- Limited Partnership – This is the form of partnership where one partner invests in the business financially, but he or she is not actively involved in the day to day running of the venture.
Getting to know exactly the type of business partnership you are engaging yourself in will help you when it comes to sharing roles and responsibilities. You will also know if you are personally protected from the business liabilities or not.
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Plan Your Exit Strategy
One of the most important things to spell out in a business partnership is your exit strategy just in case things go south. You and your business partner never know what the future holds. As much as you might be optimistic with your business, it is important that you know anything is bound to happen. Perhaps it’s a contentious divorce, unexpected death of a partner, forced dissolution or just the desire to sell out the business. Discuss your exit plan up front to prevent any future frustrations.
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Employ the Services of an Experienced Legal Counsel
As you are starting your partnership business and putting down the partnership agreement, it’s vital that you seek good legal counsel. This can make all the difference. A good legal counsel or attorney will identify any loopholes in your agreement and advise accordingly. They can also advise you based on your agreement and make suggestions on how to coexist peacefully even in the worst situations.
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Be Professional
The only way to partner with your friend or spouse for business is if it makes pure sense for professional reasons. Look beyond your friendship or relationship and take an objective look at your friend’s or spouse’s resume and background. This is essential because your clients and investors will possibly look at these credentials before they decide on whether to work with your startup.
In cases where you have decided to work with your spouse or friend, ensure always to approach things from a professional perspective. It can be quite impossible to ignore the relationship you have with the person completely. However, as you are handling issues regarding business, handle them as you would with a business partner who is not a friend.
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Practice total transparency
As much as you may not like the idea of tracking your movements and those of your partner, it is the most appropriate way of ensuring that no poor business decisions are made. Decisions that are made individually, without the other partner’s knowledge can lead to liability and financial damage to the business. With this in mind, it is advisable that all arrangements, finances, and resources are kept open.
Bottom Line
Some partnership businesses can last forever. However, there are some that will go bad in just a matter of days, and they can’t be saved no matter what is done. In a situation where partners have true potential to last but only need a little help along the way, some of the tips we’ve outlined above will be of great benefit.
Brandon Stapper is the Chief Executive Officer of Nonstop Signs & Graphics. At 20 years old, with no formal education and only a few hundred dollars, Stapper turned a $400 custom decal machine in a garage into a printing powerhouse. Nonstop Signs & Graphics has made the Forbes Fastest Growing Companies Award 4 years in a row and services 10,000 clients yearly. The San-Diego based printing company still makes custom decals, but they’ve expanded their offering to all manner of printing from signs and displays to specialty items like car wraps and vinyl appliques.