Many of the cases I run across involve disputes between business partners. When I handle these disputes the first thing I ask to see are the formation documents. I am always amazed at the number of business people who either don’t have anything in writing or have a document that addresses everything but a dissolution.
Business divorces are always ugly. There is typically feelings of betrayal and heartache. But in the end it comes down to one thing-money. When I see these disputes I wish I had been able to give a few words of wisdom to the partners before they entered their partnership. I would have a few simple rules:
1. Why are you partnering? Make a list in writing of each objective thing each partner is bringing to the table (i.e. capital, a client base etc.) Try, as closely as possible, to quantify that contribution in terms of money. Do not partner with someone just because he has “a good idea” or “good bullshit” or “is great with clients”. That person is an employee. That person is not a partner-yet.
2. Make sure your key people like the partnership. I was in a partnership once where the partners got along well but their staffs hated each other. This led to friction which was impossible to overcome. Another person who should like your partner is your spouse. Go to dinner before you strike a deal. You and your spouse may get a totally different feel for the partnership. If you don’t want to go do dinner, do not be partners with this person.
3. Put a dissolution or “exit” clause in writing. Set forth clearly defined terms that must occur in the event one of the parties is not holding up their end of the partnership. Clearly define the circumstances under which a partner can be removed “for cause.”
4. Only partner with someone who will get in the foxhole with you. I have had partners who would run at the first sign of trouble and I have had partners who would stand shoulder to shoulder when the bullets started to fly. Find the latter and be fair with them. And be sure to stand shoulder to shoulder with them when they get in a crack as well.
5.Take off the rose colored glasses. We all have a certain sense of myopia when we first start a partnership. We are enthusiastic and believe we can achieve anything together. That’s what most couples who walk down the aisle believe and the divorce rate is still over 50%. So do some homework on your new mate. Check his/her resume. Talk to his former employers/employees. If they are vague or say things like “I am pleased to say he is a former colleague of mine” or ” he takes a lot of enjoyment out of work” or “there was not a single note of discord when he worked for us”, these are not compliments. Beware of the ambiguous recommendation.
These are just a few things to think about before partnering. And after you have done these things and you still want to partner, go see a lawyer to put it in writing. If you don’t want to partner but you still think you want to work on some projects together you can always enter into a joint venture.