What's Bad for Business Partnerships? | Franchise Law Blog

What Kills Partnerships?

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Many big name companies were founded upon business partnerships: Baskin-Robbins, Hewlett-Packard, Kohlberg Kravis Roberts, etc. By combining complementary skills sets and sharing expenses, partners can build a successful business and profit handsomely from their efforts.

However, partnerships aren’t always, if ever, easy, and they’re certainly not for everybody. There are many other ways entrepreneurs can organize a business. In many cases, an alternative may actually be preferable.

See, the tough thing about most partnerships is that they are just like marriages, and if you know anything about divorce statistics, you know that half of all marriages fall apart. Making a partnership work is a balancing act worthy of a circus show. Not only do business partners have to manage their monthly overhead and day-to-day expenses, but they also have to keep their stress and egos in check. A small slip up in any one of these areas can cause the whole thing to collapse.

To build a partnership that works, you must avoid the potential pitfalls, such as:

  1. Sharing capital instead of expenses – In an ideal world, your partner is full of integrity and would never take your capital and run with it as his own. However, the world is far from perfect, and bad deals go down every day. Do not share your own capital; instead, share expenses in an “associate” arrangement. This way, it’ll be easier to walk away if things go badly.
  2. Lacking a written and signed partnership agreement – Each partner’s role and responsibilities must be clearly defined and written out, and agreed upon by all parties. Also, the agreement should be drafted by a qualified, mutually agreed-upon business attorney. If an issue arises down the line, the agreement can be used to resolve the dispute in an efficient and effective manner.
  3. Having a 50/50 partnership – A perfect split may seem ideal at first, but face the facts: one or both of the partners will inevitably feel cheated because s/he feels as if the other partner is not doing his/her fair share of the work. To avoid this, have one partner take the majority and become the point person for accountability and overall operational control.

If you are experiencing a serious dispute with your business partner, feel free to order a complimentary copy of “The New York and New Jersey Partnership Dispute Guide” provided by The Internicola Law Firm, P.C. You can also contact our office for immediate legal assistance.

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Date: 05/15/2015 | Category: Partnership Disputes

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