So you’re starting a business partnership

A business partnership is just like a marriage, be very sure before you commit.

At the start of a business opportunity, the rose coloured glasses are on, the outlook is bright and fairy-tale like. We’re going to make a million bucks with this app. We’ll solve the world’s problems, we’ll be the must-have!

Don’t think for a second that it couldn’t happen to you. Like any relationship, most don’t work out. Some people spend more time with their business partners than they do with their significant others! The chances that individuals, even if they are friends, will see eye-to-eye on all things is remote, if not near-on impossible.

A business partnership is just like a relationship, there’s a honeymoon period

The reality is that there a honeymoon period applies and soon, the business needs to work out who is responsible for what activities and to make decisions about the “what if” events.
The reason that I say all this is because it is essential for people to realise when they are getting into business legally with others, as opposed to an independent contractors agreement or other arrangement, which, if spelt out properly, can limit your liability if things don’t work out.

An exit from a business partnership is not easily done

If you jump into a joint venture or partnership or company with shareholdings straight away, you must be committed to the fact that this is going to be a serious enterprise and you may not be able to exit easily if the milk turns sour or the financial viability of the business deteriorates rapidly.

There are some significant obligations and liabilities that if the business fails, even through no fault of your own, you could be left holding the bag and declaring bankruptcy.
Yes, it’s that serious.

Make sure you seek proper financial and legal advice

Many walk into these partnership opportunities without getting proper financial and legal advice before doing so – to their own peril.

We’re not trying to scare you but I almost did it myself and I’m glad I didn’t because it would have been a very messy and acrimonious break-up if I did. It’s vital that you get the right advice at the right time.

You might consider that it’s best to test out the waters first with some arrangement that allows the parties to work with each other for some time before “getting into bed together”, so to speak. This applies to people you know well as equally as it does for those that you don’t.

If you have worked with them before in a business sense, that is a massive advantage, but I would still make sure that everyone is extremely clear on the ground rules, responsibilities, etc – what’s the saying “assumptions are the mother of all stuff-ups”?

Don’t assume that they will do necessarily what they say they will. Actions speak louder than words and we’ve seen so many clients who have been really excited about getting into business with someone else, only to be disappointed later that they weren’t as capable as what they made out to be or they weren’t committed to putting in the hard yards when it really mattered.

You have to realise that certain arrangements will impose rights and obligations that will need to be thought of carefully before entering into the business partnership.

Just remember that in a partnership, you are also responsible for your partner’s decisions and actions regardless of whether they consulted you or not! We have seen all sorts of financial mess and partnership disputes created by other business partners to our client’s detriment.

Remember also that people are really good at hiding gambling or drug habits as well! Any alarm bells, no matter how faint they are, should be listened to and investigated if you have any doubts.

A wise man once told me to choose your business partner as carefully as you would choose your partner in life.

Contact us today if you need any legal advice in relation to partnerships or if you need help resolving a partnership dispute.

(c) Progressive Legal Pty Ltd – All legal rights reserved (2020)

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