Structuring Your Partnership For Success

By Greg Niemi . May 8, 2013

The best way to structure a partnership is to think with the end in mind.  The reality is all partnerships do come to an end.  It is inevitable.  Some end amicably however, far too many do not (and I would like to change that). 

Unfortunately, it has been my experience that most partnerships usually do not work out for the best in the long run.   The partners unfold, and worse yet families unravel, and become torn apart with bitter tastes left in their wake.  

The root cause of the failure is many choose to avoid and not have the crucial conversations that need to be done up-front (with all business partners and/or family members). Partnership Agreement

The quickest advice I can give is never-ever enter into any business partnership without a buy-sell agreement in hand between the business principals and/or family members. 

Please understand I’m not saying partnerships will not work.  They can and I have seen so many wonderful successes.  Those that succeed have had the  crucial conversations up front and along the way, as needed, from time to time. 

Crucial conversations are a price of clarity to avoid later misunderstandings and battles.  Crucial conversations should be had with regards to who is wearing which hat(s).  The conversations should center around roles and responsibilities:  who are the Officers, Employees & Shareholders. 

Think of these roles in a large corporation; they are distinctly different in responsibility, authority, work effort, talent required, compensation, profit sharing, etc.  Not all roles are equal, in either small or large companies, nor should they be. 

Furthermore, roles and responsibilities often change over time so build in provisions to accommodate such change including terms for termination from a role (or from the partnership as a whole).  Thus the need for the buy-sell. 

My opinion, to quickly enter into a partnership, based solely upon a 50 / 50, or a 1/3rd, a 1/3rd, a 1/3rd, etc. understanding, is likely doomed for failure and anguish.  What does 50 / 50 mean when it comes to authority, decision making, compensation, profit sharing, equity position, shares, business valuation, etc.? 

Please have the crucial conversation about these roles and responsibilities up-front.  Document the outcomes of the conversations into a simple operating agreement (including the buy-sell agreement) by and between the partners.  Employ a professional facilitator or retain counsel if you need help. 

When you think a little like a contrarian with a healthy dose of the end in mind you are setting the partnership up for greater success than failure. 

Greg Niemi 

p.s.,  on a side note with regards to family members in business.  Some say nepotism is bad and that  hiring employing family members should be avoided at all costs. 

However, I have seen nepotism can be good especially when it comes to representing a family business brand.  However, the crucial conversations mentioned above still need to be had.

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