What to know before you enter a partnership

trees partnership

Starting a business is an exciting, if not overwhelming, venture. Starting a business with another person doesn’t have to be daunting. We discuss what you should know before you enter a business partnership. Just follow these steps and you can enter a business partnership with confidence.

Ensure your values and goals align

The will to succeed is important, but what’s more important is the will to prepare. ~ Bobby Knight

Often when you consider entering a partnership with someone you already have something in common, whether it be a new product or a great service idea. It is important to also discuss your goals, both short-term and long-term. What is important to you? What do you hope to gain in this partnership? What are the strengths and weaknesses of each partner? 

Perhaps you are great at notetaking and details but are not a natural salesman. Discussing this ahead of time will make sure you both have the same vision for your business, as well as ensuring that your responsibilities align with your strengths.

Create a business plan – together

When deciding to enter a partnership, both parties should be involved in the creation of the business plan. Some important parts of the plan include:

  • Executive Summary – the overall description of the business  
  • Company Description – the type of partnership you are  forming
  • Business Goals – the milestones the company will achieve
  • Market Research – how your company will fit into the market
  • Financial Plans –  how to budget for operational costs, how to fund the business, and how to handle proceeds once the business is profitable

Hire an attorney to draw up a partnership agreement

With the help of an attorney, decide which type of partnership makes the most sense for your business. The three types of partnerships are: 

  • General Partnership – Partners are equal in their rights and responsibilities and are personally liable for anything related to the business.
  • Limited Partnership –  Each partner can limit the amount of personal liability to their business. One partner is a general partner and makes business decisions, while the limited partner is not involved in the decision-making.
  • Limited Liability Partnership – There is personal liability protection for the individual partners, but may be subject to non-partnership tax rules.

An attorney can help you determine which partnership is best for you, taking into consideration the amount of involvement of each partner, as well tax implications of each type. Your attorney can also discuss other entity types to consider including a corporation or an LLC.

Entering into a new business partnership is an exciting time. Interested in learning more about setting up your business? Check out this article discussing how to set up your business properly.