Going into business with a partner makes entrepreneurship less lonely, but it brings its own complexities.
Just like the old saying goes: two heads are better than one, right? When it comes to entrepreneurship, that might be true – having a partner means you have someone as a sounding board, perhaps complementary skills or even much-needed financial support. But, in the case of a poorly established and managed partnership, it could also be the reason your business fails.
The key to a successful partnership is setting it up correctly from the start. And that requires some hard discussions and planning.
Finding the right partner
A business partnership is a lot like a marriage. You will be contractually tied to that person for as long as what your business exists (of course, there are ways to get out, but they’re not simple). So, you will want to find someone who shares the same goals and vision for the business, preferably has the same work ethic as you and is reliable, committed to the success of the business, and has something to offer. Ultimately, the business should be better off with them onboard.
There are mixed opinions about whether or not it’s a good idea to go into business with friends and family members. For some, it makes sense as you know them well, while for others, it’s a no-no because a business rift could end the personal relationship you had before starting the business.
When deciding if the person you are thinking of going into business with is a good partner, ask the following:
1. Do you get along easily?
2. Do you feel comfortable challenging them on something you don’t agree with?
3. Can you trust this person?
4. How would you handle a conflict or disagreement with them?
5. Are they as passionate about the business as you are?
6. What is their work history like?
7. Do they bring something new to the table (skills, experience, strong network, etc.)?
8. Are you on the same page about the business?
Put a partnership agreement in place
In South Africa, a partnership is fairly easy to set up. It is similar to a sole proprietorship in that the assets and liabilities of the business are linked to that of each partner (meaning the profits are part of your personal income tax and if the business fails, your personal assets can be used to service any debt) and it does not need to be registered with the Companies and Intellectual Property Commission. A partnership is not a legal entity.
However, you can choose to register the business as a private company and in the process, you can choose to have one partner as the director or split the directorship between each of the partners.
While not a legal obligation, it is highly recommended that you put the terms of your partnership in writing. This is called a Partnership Agreement. You can draw up this agreement yourself, but you might want to consider having a lawyer do this for you to ensure the terms comply with South African laws around partnership.
You and your partner will go into this with the best intentions, but you need to think of future scenarios that could be unpleasant. Think about and agree on how you would manage these situations now while things are good between you rather than trying to figure it out when there is tension in the business.
The partnership agreement should, at least, include the following:
- The name, purpose and duration of the partnership
- What is expected of each partner? (i.e., each person’s role, the level of performance, whether it is a full-time or part-time commitment)
- The income for each partner as well as how profits or losses will be shared between partners
- How each partner contributes to the business in terms of money, assets or labour
- The process to be followed should one of the partners decide to leave the business, retire or passes away
- On what grounds can a partner be expelled from the business and how will new partners be onboarded?
- How will disputes between partners be settled?
- Financial arrangements, including banking arrangements, authorisations and bookkeeping responsibilities
- What happens to the business if the partners no longer wish to work together?
These are just the basics – the more thorough your agreement the better it will serve you in future. You can find templates for partnership agreements online to use as a guide, like this one from Legal Wise.
Maintaining the relationship
To maintain a healthy relationship with your partner for the sake of your personal relationship as well as the success of your business you need:
- Transparency: You can’t sugarcoat anything to avoid upsetting your partner. That doesn’t mean you shouldn’t consider their feelings, but you will need to present all the facts and express your honest opinions and expectations. You and your partner should also be open about your strengths and weaknesses.
- Shared vision: Are all the partners equally committed to the business vision and has this been clearly communicated. Some might only be interested in generating cash quickly to improve their personal finances, while others might want to invest any profits back into the business for future growth.
- Trust: This is a biggie! You cannot have a healthy partnership with someone you don’t trust. If you are going into business with someone you don’t have a long track record with, you might even consider running some background checks and getting a few references from others who’ve worked with your partner before.
- Communication: This might require scheduled check-ins to have conversations about expectations, goals and experiences. Do your best to create an environment where all partners feel empowered to speak up and share ideas.
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