Business “Pre-Nuptials” Are a Must For Partnerships
You dream of starting a business. You form an LLC or sole proprietorship, get the licensing you need and then you’re off! You’re a legitimate business owner! Next, you call your family and friends and start marketing to the masses! Things are great at first, but after a few months you start to panic: Where are the sales? Where are the masses? Is it time to consider bringing in a business partner?
A partnership (as defined by the IRS) is an unincorporated organization formed by two or more entities or persons that join to carry on a trade or business. Each partner contributes money, property, labor, or skill, and each expects to share in the profits and losses.
A big idea can go far, but without a partner it can be hard to move forward. It’s not just about capital, but having the expertise your business needs that you’re not able to provide alone.
According to Elizabeth “Liz” Lessner, founder of Columbus Food League and Eartha Limited, knowing how you are going to “get out” is as critical as finding the right partner. Before you say, “I do” to a business partnership, “hire a good attorney and an accountant and form a ‘buy-out agreement,’” says Lessner.
A buy-out agreement helps you plan what will happen when a partner leaves the business. You and your partner will be prepared if one partner wants to leave for any reason, like divorce, moving out of town, a death or a bankruptcy filing. Your attorney can draw up forms with the proper language to protect both parties. Your accountant will be able to show profit and loss statements that back up your decision to move forward in case of a partner dispute.
“Get an attorney and accountant who know what they are doing and help you set it up right the first time,” says Lessner. “Often times partnerships are formed without legal counsel and huge financial repercussions are a stake, including losing your entire business.”
Defined roles and boundaries are also key. It’s important to bring someone into the business who compliments your strengths.
Liz offered more advice during our interview--like how to partner with the neighborhood when your business moves in. Watch the full interview on: Columbus BIZTV, Dames Bond with Mary B.