Posted on November 28, 2011
When two or more people come together to start an enterprise there are always other agendas happening in the background. For that reason it is always wise to go through the process of preparing a partnership agreement. Now I don’t mean a quick whiz through and an equally quick yeah, yeah, yeah. I mean a consideration of each point with the major question not being in the agreement outline.
That question is – Is this the best option? Perhaps not. Partnerships are fraught with danger. Success rates are low and a few who do stay in business either form a company (which is fine) or waddle along with one partner resenting the actions of the other and doing the old silent sabotage thing.
So let’s look at some options. To consider the options properly one must look at the ‘why’. Let’s take a look at Jim and his friends Kate and Bob. Kate and Bob are married. Jim is skilled in the area that the business is to run. So they form a partnership with Jim putting in 20% of the capital and all of the skill. They run for three years with the tax department recognising their 33.3 % partnership . By this time Bob and Kate have learned most of the skills and even though they can never have Jim’s experience, they believe it’s time to change the rules.
Bob tells Jim that he should only have 20% of the business as he only put in 20% of the capital. We have a problem – Jim is about to get ripped off. How many times do I see this? I hate to tell you. One person has the skills or sees the opportunity and someone else wants to jump on their wagon. When Jim rang me there was little I could do. If he had asked me at the beginning I could have given him three options – one of which was the road he took although I would have advised a strong partnership agreement with ownership rights to his intellectual property. It would not be my preferred option.
Although I don’t push new business into the company structure it would certainly be an option in this case. The deal would have been for Jim’s third share – partly his capital investment and partly on Bob’s extra contribution for the skills he was about to inherit. You
and I know that Bob would not agree to that as his agenda was already set. The alternative was for Bob to stay on his own and have strategic partnership with Bob and Kate. This way he would not be giving away the skills he had spent a lifetime acquiring.
Strategic partnerships work well where individuals join together on project type jobs e.g films, website work, IT projects etc. Each person maintains their own integrity but join forces to attract work to the mutual group. This has worked well in the Newcastle area with tradespeople banding together to tender for government jobs.
You see, we don’t know why Jim accepted the initial offer. His business skills may have been lacking or his marketing activities were not working and he may have been thinking that with Bob on board he would be better off. He may have been just tired of struggling on his own. Perhaps staying on his own and employing a marketing consultant/sales professional or business coach could have saved him much grief. If I had been consulted at the beginning I could have thrown a few options on the table for consideration but at the point I was consulted all I could do was refer him to a solicitor – it was already starting to get nasty.
Maggie Richardson
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