Know Your Business Partner Before Starting the Business
Before going into business with anyone—family or not—you need to get to know your future business partner. In the beginning, you will be working long hours. Starting a company with someone with whom you have no shared values or desires is not sustainable. As a result, countless entrepreneurs go into business with close friends and family members.
On the surface, this makes sense. After all, you’ve probably known this person for the majority of your life. Plenty of the world’s most widely known companies were started by close personal friends. Plenty more, however, do not make it. A common reason for this is that friends and family members who start businesses together assume they do not need a partnership agreement or operating agreement. Other times, these entrepreneurs believe they need one later on, when they expand operations. Both of those assumptions are big mistakes.
Why? The short answer is that you can never truly know a person. The pressure of starting and sustaining a successful business is a pressure like no other. You might know how your business partner has handled heartache, existential crises, or other personal matters, but the challenges inherent in business startups are unique.
A few questions you will need to answer before starting your business are:
- How much time will each business partner put into the company?
- What percentage of the profits will each of you receive?
- How will ownership of the company be divided?
- Which areas of the business are you responsible for? What about your partner?
- Will you ever take on another business partner?
- How will disputes be resolved?
That last question is so important for you and your business partner to answer before you get to that point. In many cases, it is more cost- and time-efficient to settle any business disputes through mediation or arbitration. If you and your business partner disagree about some fundamental matter regarding the company, neither of you might be in the mood to suggest mediation or another form of dispute resolution besides litigation. If you specify in the partnership agreement, though, that disagreements must be resolved through mediation, you can avoid quite a bit of uncertainty out of the situation.
Without a procedure for settling disputes, things can get quite nasty between you and your business partners. When communication is already acrimonious, the chances of talking something out and coming to an agreement are slim. In the worst-case scenario, your business AND your friendship come to an end.
Is that worth putting off the creation of a partnership or operating agreement?
The Browne Firm Can Help You Protect and Preserve Your Business
The bottom line is that nobody is too close to you to never have a disagreement. Starting a business in New York with your close friends or family can be one of the most rewarding experiences of your life, but it can also easily turn into something that threatens both your entrepreneurial dreams and personal relationships. Your business attorney in Westchester County, The Browne Firm, thinks both of those are worth protecting.