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What to consider when going into partnership

The advantage of going into business with a partner is being able to make the most of shared resources and complementary skills. However, one of the most common disputes I come across is a partnership that has gone sour. A typical scenario is two partners who enter into partnership on the basis that responsibilities are split according to the individuals’ skills/talents and perhaps share profits, costs etc. 50/50.

Unfortunately, the relationship often goes sour because not enough thought has been given to the time each partner will dedicate to the business. Over time, one partner finds he/she is having to spend much more time than the other due to the nature of the roles.

Consider the following if you're thinking of going into business with another person:

  1. A poorly written partnership agreement (or even worse, no agreement at all) can expose you to excessive risk. It's a good idea to appoint an experienced legal practitioner to draft an appropriate document.

  2. While a 50/50 split of profits may sound fair at the start, sometimes resentment can emerge when partners review individual workloads, efforts and results. Decide from the outset the roles/ responsibilities of each partner and how disagreements will be resolved.

  3. Many partnerships derive from personal friendships or co-worker relationships. A good partnership should be grounded in business and treated as a business relationship. Each partner should be accountable for his/her responsibilities and objective indicators should be used to measure performance.

  4. There should be an agreed vision for how the business will grow and expand.

  5. Prepare for when the partners decide to go their separate ways and document such eventuality. How will individuals be compensated? How will resources be divided?

  6. Each partner needs to be clear on their levels of authority.

This should not be relied upon for legal advice. If you would like any further information or advice please email richard@clariclegal.co.uk.

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