Don’t mix business and friendship. This is not to say you can’t be business partners with friends, but it is a warning not to blend the friendship with the partnership: keep the two relationships separate. When partnering with a friend or a stranger, it is important to document the specific terms of the partnership. Job expectations, ownership and compensation are just a few of the terms your partnership agreement should cover. Avoid ending your friendship over a business dispute by putting all key terms in writing before you begin working together.
Avoid equal or 50/50 partnerships. Unless a written agreement states otherwise, the majority owner of the company makes all decisions with regard to company cash. While minority ownership of the company will result in a specific percentage of company profit, it is the majority ownership that will dictate if and when that money will pass through to ownership as profit. Again, the majority owner decides whether to issue a dividend, reinvest in the company, or to follow any other course of action in the company’s best interest. Additionally, equal partnerships also create the potential for a company vote to end in a tie which many times creates unneeded strain on the business and partnership relations.
Keep communicating. In the beginning, partners continuously have ideas and methods for improving the business. Over time, the excitement fades and the business typically suffers or becomes routine or dull, not utilizing all its potential as a business. To avoid business monotony, Partners should regularly review their business activities and update their contracts as needed. Partners should discuss the hiring of an experienced lawyer they feel comfortable with. Partners must also communicate with one another to protect themselves and the company. Communication is a cornerstone to many long-term relationships and a business partnership is no different.
When entering a business partnership, these three issues, among other things, should be considered. Keep in mind, conflicts may arise between individuals who have a business relationship, but if you pay attention to these three keys, the impact of any conflict will be less damaging. Not only will the business be able to maintain its existence and avoid a detrimental outcome but also the relationship with your partner will maintain its integrity and survive.
Amir H. Afsar, Esq. has been practicing law since 2004 and founded his firm, Afsar Law Group, A.P.C., in 2008. Mr. Afsar and his law firm represent clients and also mediate/arbitrate matters involving business, real estate, construction, and automotive legal claims throughout California. Mr. Afsar can be reached at Afsar Law Group, A.P.C. at 760.345.3110, Ext. 22, or via email.