business partner

Starting a Business with a Partner? Here’s What You Need to Know

Opportunities to start a business can happen at any time, even during a pandemic. Amid COVID-19, many individuals spent their time in quarantine practicing a side hobby or developing a new offering that meets the needs of their target audience. As more people lean into entrepreneurship, some have decided not to go it alone. Instead, they’re teaming up with a partner.

Going into business with a partner can be a fantastic decision. You’re able to focus on what you’re passionate about alongside a like-minded individual. Many great partners are also the same people we have known for years, like friends, family members and colleagues.

Running a business with a partner, however fun and familiar that partner may be, is still a lot of hard work. Getting the business up and running means making decisions, balancing strengths and weaknesses, and ensuring all partners stay on the same page about the company.


StartupNation exclusive discounts and savings on Dell products and accessories: Learn more here

Prior to starting a business with a partner, follow these guidelines for ensuring the startup (and team) succeeds

Determine which entity to incorporate as

Which entity should you incorporate the business as? Many entrepreneurs may initially default to a partnership entity, but it’s important to know that your business has options. These options further open up depending on the number of partners in a business, too.

For instance, let’s say you decide to incorporate as a partnership. Depending on what your business does, you may choose a specific partnership formation.

  • General partnership: This is the most common partnership entity. Two (or more) partners run the company together. Profits, liabilities and management duties are divided equally across all partners.
  • Joint venture partnership: A temporary partnership designed for when a certain phase of development has been completed or to speed up a certain business process.
  • Silent partnership: One partner assumes the responsibility. The other partner(s) provide(s) capital and chooses to stay behind the scenes.
  • Limited liability partnership (LLP): This entity is a little bit like a limited liability company (more about that in a moment) since it provides liability protection to its owners, or partners. However, an LLP is typically reserved for individuals in specific professions. Think doctors and lawyers.

Outside of partnerships, what other common entity formations are available for partners to incorporate as?

  • Limited liability company (LLC): As mentioned above, an LLC provides its owners, or members, with liability protection and flexibility for choosing the way you’d like to be taxed. Members may also incorporate as specific types of LLC formations (including single member, member managed and manager managed) depending on the number of members.
  • Corporation: This entity is ideal for partnerships that hope to expand globally or take their companies public. A corporation provides liability protection under a structured entity. A board of directors may be established, shares can be issued, and investors may invest in your business.

I singled out these two entities due to their written agreements — an LLC operating agreement and bylaws, respectively — that are key for entrepreneurs considering a business partnership.



Draft a written partnership agreement

Should you decide to incorporate as an LLC or corporation, the next thing you’ll need is a written partnership agreement. In an LLC, this is commonly referred to as an LLC operating agreement. In a corporation, these are called bylaws. Much of the material in each document covers these specific areas.

  • Terms and responsibilities: When did the partnership start? Detail the start date of the partnership as well as any terms for termination. Outline the responsibilities each partner has in the business, as well.
  • Capital: This section defines the amount of capital contribution from each partner. It also details what the terms look like for profits and losses split between the partners.
  • New partner admittance: Are there guidelines for admitting a new partner? Include details here for this process and how partners are admitted into the partnership.
  • Voluntary and involuntary withdrawal of a partner: In the event that a partner wants to withdraw from the company (or must involuntarily do so), explain the terms for the process of withdrawal.
  • Death of a partner: In the event of a partner’s passing, outline the right of the surviving partner(s) to liquidate the business or purchase the decedent’s interest in the written agreement.

Sign Up: Receive the StartupNation newsletter!

Prioritize transparency in your partnership

You’ve laid out the foundation for how to successfully run the business together through incorporation and a written agreement. Each partner clearly understands his or her roles in helping the business succeed.

Maintain transparency between partners starting on day one in business. Be honest with one another, and commit to working hard in order to achieve your common goals. Follow the mission and values created for the business. If you don’t already have a mission statement, begin working on one together.

Look at this partnership as more than an opportunity to go into business. See it as a rare chance to expand your relationship with an incredible individual who is now your business partner — and part of the dream team.

Total
20
Shares
Previous Article
Business Continuity Plan

Think Your Startup Doesn’t Need a Business Continuity Plan? Think Again

Next Article
e-commerce side hustle taxes

What You Need to Know About Taxes for Your E-Commerce Side Hustle

Related Posts
Read More

WJR Business Beat: We’re Spending Even More Time Online (Episode 411)

In today's Business Beat, Jeff tells us consumers are spending more time online and explains what businesses need to do to reach them. Tune in below for more details on how digital use has changed with the pandemic:   Tune in to News/Talk 760 AM WJR weekday mornings at 7:11 a.m. for the WJR Business...
home-based businesses
Read More

The Value of Home-Based Businesses to Economic Recovery

The challenge of America’s economic recovery, in the wake of the COVID-19 pandemic, is to spread it to every community – and especially those that have been historically excluded. The key to meeting that challenge is to appreciate the civic and economic value of an overlooked resource: home-based businesses. There are about 16 million home-based...
top fintech startups
Read More

Top Fintech Startups in the Midwest 2022

The Midwest is rapidly becoming home to some of the best fintech startups in the country. Chicago, for instance, is becoming a top tech hub for fintech startups, seeing massive growth and funding for its companies. In Columbus, the city’s long history with top banking institutions has created a fertile ground for fintech startups to...
crypto
Read More

5 Ways to Leverage Crypto to Scale Your Business

For businesses to grow and scale, they need to find new and innovative ways to improve their products and services and make their business processes more efficient. One way that many businesses are achieving these goals is by tapping into the world of cryptocurrency. Cryptocurrency adoption among businesses and consumers has never been higher. It...