A Discussion on Business Partnerships

I’ve frequently talked about various alliances in businesses, but today let’s specifically discuss business partnerships. At its core, choosing a business partnership is a deal, and so for many, choosing a business partner is their first deal. If you’re going into a business partnership, it’s just like any other deal and requires the same consideration and respect.

A BREAKDOWN OF BUSINESS PARTNERSHIPS

What I mean when I say “partnership”, I mean that from a business (not legal) point of view; namely, two or more people who come together to have joint ownership of the business in whatever legal form that might be. This includes general partnerships (which are almost never recommended), limited partnerships, limited liability companies, and corporations.

Your choice of business partner structuring is dependent upon several criteria. This may include, but is not limited to:

• Your type of business
• You and your prospective partners’ goals, not just for the business but personally, as well
• Tax structuring between states and countries
• How each partner wants to be involved in various aspects of the business
• Location of the business
• Location of each prospective partner
• The future potential for bringing in more partners
• Growth potential and expectation

My firm, Kupfer & Associates, deals with many aspects of the legal side of forming business partnerships, from writing up the paperwork to begin a business partnership, to the dissolution of partnerships. Our goal is to provide a process that moves in a positive manner for all our clients and their deals – the workings of a business partnership are no different.

STARTING A BUSINESS PARTNERSHIP

There’s a limitless number of reasons why people are drawn together to form a business partnership, but the two main ones you tend to see are:

1. Friends, relatives, coworkers, former classmates, etc. with a common goal in starting a business
2. A person has a business goal in mind and specifically starts seeking others to begin a partnership with based on a myriad of reasons; be it seeking a specific skill set, expertise, or funding

There is no wrong reason to start a business partnership; nonetheless, there will always be advantages and disadvantages to how you go about obtaining a partnership. For example, forming a partnership with a close friend or relative provides you with firsthand, personal knowledge of the person/people you will be doing business with. While knowing who you’re going into business with is vital, it might strain the personal relationship, especially in any potential adverse situation.

On the contrary, when you seek out an unfamiliar person to partner with, you lack that pre-existing personal knowledge. Building a business partnership can be and often is a personal experience that requires trust, so you will need to spend some time developing trust and knowledge, which can take a fair bit of time, thus slowing down any expected timeline you may have.

Thoughtful and meticulous due diligence is important in any deal; finding and beginning a business partnership is no exception, no matter if you’ve just met your prospect, or you’ve known your prospect for 20 years. 

Regardless of the who, your due diligence should include, but is not limited to, looking at:

• Personal background
• Financial background
• Legal background
• Cultural background
• Personality – IE: do you get along well?
• Shared goals, values, and expectations

THE BENEFITS AND DOWNSIDES OF A PARTNERSHIPS

There are plenty of reasons for wanting to begin a business partnership. Their benefits are also vast. They include, ideally: 

• Someone who is as committed and vested to the business as you are
• Someone with whom to share the responsibilities
• Someone with whom to share the burdens
• Someone with who you can brainstorm and work with to evolve the business
• Someone who can help keep you in check

While you can bring in employees to cover many of the above areas, a partner is often more valuable than an employee in many of these areas simply because of their commitment and vested interest in the company. A partner with a stake in the company is, of course, going to have more to lose, and thus be more vested, than someone who is hired to take on certain things. That’s not to say an employee doesn’t care about your business, but their interest in the business’s success and growth isn’t going to be as deep as someone who has that same vested interest as you do.

Depending on your personality, your goals, your circumstances, and even the type of business you want to start, the benefits of having a partnership can easily become the downsides. You can’t just do what you want with the company. You have to work in collaboration with others and take into consideration their goals, values, and expectations.

ALIGNMENT AND THE EVOLUTION OF A BUSINESS PARTNERSHIP

You’ve chosen the who, you’ve sorted out the how, and you’ve built your business. Keeping alignment with your partnership(s) is critical to making your business grow and succeed. Generally speaking, I always encourage people to listen to the market and their clients when growing. With that, I don’t mean ignoring your – or your partner’s – goals and expectations, but remaining conscious and sensitive to where the market is at or what your clients are asking for is going to help your business grow, as well as keep up with demand and remain competitive.

 A lot of times, this can mean steering off course from your original plan. Both you and your partner(s) need to be adaptable to your goals and expectations. Without this adaptability, your partnership alignment can quickly fall out of sync, which undoubtedly will create problems. 

If you find your partnership desynchronized, it’s important to take stock of what is causing the issue and how to resolve it. Sometimes that will mean formulating an exit, which can be done with minimal damage and with amicability. Conflict of vision or expectation does not have to mean the death of a relationship or business.

ANTICIPATING THE EVENTUALITIES

It’s important at the start of a business relationship to expect all sorts of scenarios, including how to handle an exit. From the legal standpoint, your legal team will want to anticipate any and all potentialities to the best extent possible and how to handle them and get them in a legal document. While it is a great practice to get as much in writing as possible, it’s impossible to predict every potential scenario, positive or negative.

Provisions made in your legal documents for partnership can be a roadmap to how to handle situations you may not have anticipated at the start. You may have a provision made for a potential exit, but you can’t possibly come up with every possible reason for, and outcome of, an exit.

Deciding in the beginning on a general methodology of Circumstance X will provoke Outcome Y and will be beneficial later down the road if Circumstance X happens. If it does happen, then sorting out the specifics to achieve Outcome Y will be much more fluid, and result in fewer headaches and legal troubles.

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For my full discussion, and more on the topic:
Listen to the Full DealQuest Podcast Episode Here

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

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