When Business, Friends and a Dream Collide Part 2

Continuing our Story from Yesterday…

It’s ironic but Alex and I didn’t communicate openly.  I think we tried to avoid difficult or uncomfortable conversations and so we swept things under the rug. 

Until the rug was too full and collapsed the floor underneath us

Looking back, there were so many things we could have done to prevent the disaster that followed.

The main thing obviously – a clear agreement on how we would handle disagreements – especially around selling the company.

We were a partnership of two.  We had no umpire or referee to cast a deciding vote. We should have figured how to get one before a fight broke out.

Anyways, here are some strategies I recommend you write into a partnership agreement when you start the business (or put in today if you have an existing partnership and these are missing).

Define clear selling criteria ahead of time – this way, you’ll know what to do if one of the partners wants to sell the business. It reduces the chances of misunderstandings between the partners about when and how to sell.

Write out potential buyout terms – Make any buyout process official with steps and criteria. Formally explain what happens when one partner wants to leave and what is the predetermined price or calculation formula for the other partner to buy him out.

Do some estate planning – This will help things go smoothly if one of the partners dies, by allowing their estate to settle their shares and avoid any legal disputes – Same with divorce.  Spell out what happens in those cases and who has the right to take over the shares, etc.

Include Dispute Resolution – Put in writing what steps to take when a disagreement arises. For example, bringing in a mediator to resolve the issue and how one is selected and for what purposes.

Negotiations Clause – A negotiations clause stipulates clear pre-defined steps to be taken before any ultimate decision is made. This includes allowing room for negotiations and compromise among both parties.

Compulsory Purchase Clause – gives one partner the right to buy out the other partner’s share of the business at a predetermined price if the partner becomes unable to fulfill their obligations or if profits steeply decline.

Time-bound Restrictions – Set time-bound restrictions on when partners can exit the business. This will help avoid a sudden exit that could threaten the success of the company.

Non-compete clauses – These clauses restrict one partner from engaging in a similar business or trade with competitors until specified time lapses.

Termination Clause – Outline clear conditions for ending the partnership in case it’s necessary to wrap up the business relationship.

Intellectual property ownership – The partnership agreement should clearly state who owns the company’s intellectual property rights and how such intellectual property will be utilized if one partner exits the company.

Ultimately, a well-written agreement with clear instructions for different situations would have helped us a lot. Maybe we would have avoided the severe disagreements and escalations that destroyed our friendship and business.

We would have saved ourselves a boatload of grief, pain, and expense.

Unfortunately, we had nothing in writing, which made it difficult to find a fair solution that worked for both of us.

So don’t learn this the hard way. Clear communication and agreements, before the fact, are essential for making a successful business partnership work.

And don’t forget good contingency plans.

Regards,

XXXXXXX