Partnerships

[Bades]

I was reading the bar/restaurant thread and got to thinking about partnerships and everyone saying how bad of an idea they are.

My question is what do you suggest? A lot of times partners compliment each other very well, one is a finance and numbers guy, the other is the subject matter expert on the said product or service, etc.

Most people can't quit their day jobs to start up a new business so they get a business partner to help out.

I don't think partnerships are wrong or bad - I believe it is the lack of planning that ruins partnerships.

Operating agreements must be very detailed and everyone must understand it to a tee! I think it's very possible to have a successful partnership, there is just a lot of due diligence one must do to prepare for any and all situations.

[MonkeyMama]

I work with many small businesses - partnerships rarely if ever work out for the long run. Partnerships, if nothing else, just add so much layers of complication. What do you do when a partner gets sick, dies, sells or gives his interest to someone else, gets divorced, retires, get sued, when the partnership is failing, yadda yadda yadda. The list goes on and on and on.

If you need funds - find an investor.

From a business standpoint it is infinitely easier just to give others a share in the profits. This is usually how it is done.

I have a few clients who have looser partnerships. They structure it that all high level employees are brought on as partners. They have the legal side pretty nailed down. Still? Ugly ugly ugly. There is always some drama - clash of personalities, divorce, legal problems (one partner gets sued, so they kick him out, he refuses to leave quietly - that was a fun one!). Oh, divorce is always the most fun! I would never recommend that anyone choose a partnership structure for their business.

Most my clients are not partnerships, even though they often "partner" with other people. Their legal bills are infinitely smaller - I Can assure you that. The same headaches don't cause anywhere near the legal problems and drama. Someone's being a real PITA - you just fire them or get rid of them. The End. You get pissed and you want to leave? You just get up and walk away - you don't have your assets tied up in the thing. The exact same stuff happens in any partnership, but it takes 5 lawyers to leave or to kick someone out.

There will always be an exception to any rule. This doesn't mean that no partnership has ever succeeded.

[FireBal989]

A few of my uncle's friends started a small business as a partnership way back in the 1970s, and they were very successful.

The business is still going, and it is has made excellent profits for all of them.

A partnership can be very profitable, and it is a great way to share investments in the business as well as profits from the business. When getting into a partnership, it's very important to have everything in writing and to ensure that all the details and the aspects of the partnership are covered, just in case something does happen.

[Bades]

@Monkey Mama

Do you see a lot of Multi-Member LLC's where one person has majority voting stock?

[MonkeyMama]

I actually don't work much with actual LLCs or partnerships. Mostly corporations. Due to the type industries I work with, and state rules.

We have a few real estate LP type businesses that have a majority owner or two, and then their investors each own like 1%. That kind of thing.

Are you thinking of starting or investing in a LLC? Just go in with eyes wide open and tread carefully. & consider your risk tolerance and PITA tolerance, etc.

[Bades]

Got a small investment property with one of my best friends - getting it for very cheap, not a big time money maker, but still a small profit.

More or less doing it for the experience and the real estate.

Drafting an operating agreement up now for the LLC.

Going 50/50 with either a mediation clause or a "texas shootout" clause if we come to a crossroads on something.

Never say never, but he is my best friend since kindergarten, and I'm not willing to lose that friendship over a small investment property.

[Bades]

Not my first LLC, but my first multi-member LLC

[sherylgray]

Partnership will be very ugly if it won't work out. And it is like raining money if a good collaboration will be made.

I personally suggest to sign a partnership deed with not more than 3-4 members to start with. Also the deed must be very well written. Take help of some legal professional. Most importantly work and responsibility should be divided evenly and no interference should be allowed until it asked for. Hire a third party accountant to keep a track of every single penny.