What to Remember Before Entering a Business Partnership
Business partnerships have a myriad of benefits to the parties involved. The partners can pool their resources—especially money—to have a stronger foundation, bring in their diverse skills and talents, and offer more growth and expansion opportunities. However, business partnerships are more than individuals coming together and doing business. Each person needs to vet the others and to lay down some ground rules to guide the running of the business.
The following are some vital things you need to have in mind as you enter a business partnership:
The things you need from the partners
You need to consider what each of the partners is bringing to the business, and ideally it should be different for everyone. For example, if it is a two-partner affair, and you have money to put into the venture, you may need to get a partner with excellent networks or connections, or who has access to the market. You may also need to partner with someone who is more outgoing if you are shy or an introvert.
It is critical to clearly define from the onset the amount of contributions from each partner in both the formation stage and the continuation of the business. Finances may be the most crucial thing to agree on—the amount of money each will contribute to set up the business, and how much each will be responsible for when it comes to future needs. Other than finances, it is good to define how much or what each partner will put forth in relation to time, equipment, and other resources.
While still considering contributions, the liabilities of the business are borne by the partners and may affect their personal properties if they exceed the business resources. Partners may consider having their business incorporated to be a private limited company to protect themselves from unlimited liability in partnerships. To incorporate your business in Singapore, it would be better to work with One Visa to have a stress-free process, thanks to their experience and expertise.
It is important to consider what should happen in the case of various changes that could effect the ownership of the business. Some of these issues include the sharing of proceeds if you, as partners, decide to sell the business, the position on bringing new partners onboard, the issues surrounding a partner who wants to withdraw, and the options with regard to buying out a partner.
You also need to define what happens in the event of death, bankruptcy, or retirement of a partner. It is also worth anticipating a scenario in which a partner can leave the partnership, start a competing venture, and steal some of the business’s clients—thus, you should have a non-compete clause in the partnership agreement.
Although you may have come together as friends, you will at times not agree on certain things. It is vital to agree on how daily operating decisions and long term decisions will be made. You can define who gets to have the final say. Clearly state what kinds of decisions may be made by a single partner and those that require a unanimous vote. The existence of a decision-making structure that all partners understand and consent to offers a good foundation for a business with minimal conflicts.
Should things get ugly among the partners, how are the disputes to be solved? You may have documented mediation as the first step. You can all agree to give arbitration priority when you need to settle thorny issues. Court proceedings may expose your partnership, so you need to remember they should be the last resort. Defining conflict resolution mechanisms will do away with guesswork while dealing with disputes.
It is worth considering the above issues when entering into a partnership, to consult with a legal expert, and to have a written document to guide your relationship in the business. With such a document, it is possible to avoid legal issues and quite some hassle in future.