Monday, August 16, 2010

Partnerships are Like a Marriage

clip_image002[1]This article was written by Hillel Pitlik, SCORE Orange County Management Counselor

Getting into business with multiple participants requires more than vetting the business idea but a clear understanding of the personal involvement of each partner. Although the business may be exciting and potentially profitable, the partners must be aware of a major pitfall that lies ahead of them.

Before you decide on the corporate structure, the pecking order in the business, the way you’ll split the profits, you must resolve the obligation of each partner to serve the enterprise. Namely, what do each of you bring to the party, in time and resources?

This entails a frank discussion of each party’s role in the success of the business. This is not a short term matter but a long term commitment. Many a business has had problems because the extent of each member’s commitment was not defined in specific terms at the outset. In fact, the commitments defined in such a discussion form the basis for what part of the pie each member receives from the business. And further, if the member’s obligation is not fulfilled, how the remuneration is to be adjusted. Certainly, this requires the definition of the methods for evaluating the fulfillment of the agreed upon tasks.

These discussions are tricky and by no means straight forward. They demand honest discourse and will form the basis for the many decisions that must be made in commencing the business.

You might ask, “Is this the first priority?” Absolutely! The partners are best able to agree on these matters well before the big bucks cloud your views.

Just as in a marriage, the partners must agree on the methods available for detaching themselves from the enterprise (divorce).

The result of all of the above discussions should be a legal agreement, prepared by an independent legal counsel and signed by the partners. Now you can get on with the business at hand and count the shekels with confidence that your venture will proceed with all parties moving in the same direction.