When setting up a business, there are a couple of different ways you can go. You can opt to be a sole trader or set up a limited company. But you can also enter into a business partnership with another person. A business partnership is legally defined as a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labour or skill, and in return each partner shares in the profits and losses of the business. But how do you effectively manage a business between two or more people? At Caversham Solicitors, we have a few top tips for a successful business partnership.
Communication Is Key
Much like with your partner at home, it is impossible for your business partner to read your mind. When business partners come to us with disagreements to be mediated, we often find that the root of the disagreement isn’t actually the issue itself, it’s the lack of effective communication between the two partners. We recommend setting clear boundaries and expectations for each business partner at each stage, and making sure that you talk to each other on a regular basis. It’s all too easy to misinterpret an action without context, and you stand to lose nothing by picking up the phone and talking things through first.
Enter Into A Partnership Agreement
A partnership agreement is an essential part of any business partnership. It is a legal contract between all of the partners that sets out, in detail, the terms and conditions of the relationship between the partners. This includes:
- Percentages of ownership and distribution of profits and losses
- Description of management powers and duties of each partner
- Term (length) of the partnership
- How the partnership can be terminated
- How a partner can buy his/her share of the partnership
By having everything legally agreed at the start of a partnership, you are protecting yourself and other partners in the business from issues later down the line. This will also help you avoid legal and liability issues, tax problems, partner issues and help you to deal with changes in the partnership. A solicitor should always create a partnership agreement for you, to make sure you include all important ‘what if’ questions and ensure everything is completely legal.
Identify Your Strengths And Weaknesses
Everyone has strong areas and weak ones, and one of the great advantages of a business partnership over going it alone is the ability to share your skills and plug the gaps. Be up front and discuss your strengths and weaknesses with your business partner – and talk about theirs too. Work out what you’re good at, what you do well and what areas you can’t do or aren’t comfortable with. By doing this, you are able to create a strong, stable business and mitigate risks by putting the right partner in the right roles. Don’t be afraid to be dependent on your partner – in a good business partnership, both people bring something equally important to the table.
Get Some Legal Advice
Business partnerships are a wonderful thing, and they have created some of the most successful businesses out there. But as with any other walk of life, disagreements can and will happen. The problem is if you fall out with your business partner, it’s not as simple as just walking away. So before you do anything, sit down with a solicitor and get some legal advice. We can prepare detailed partnership agreements that fit your unique circumstances, so you and all other partners know exactly where they stand, what their obligations are and what they are entitled to at all times. These agreements also establish how disagreements between the partners will be handled and resolved, in advance of them. Lay out the expectations for each party and make sure you are both covered legally. While it might not be all that positive to think about potential problems so early on, it’s essential if your partnership is to function effectively and weather all storms.
Every partnership in life is a never-ending work in progress, and a business partnership is no exception. The key is to remember that effective communication will often prevent problems before they have a chance to form, and sweeping issues under the rug never works as they always come bubbling to the surface anyway. If you have questions about entering into a business partnership, or you would just like some impartial advice, get in touch with the team at Caversham Solicitors today and book in your appointment.