Not Putting Partnership Agreements into Writing
This small business mistake is part of a collection excerpted from Gary Schine's book 101 Small Business Mistakes
Not Putting Partnership Agreements into Writing
Many small businesses start as partnerships or as corporations that are essentially partnerships in all but a legal sense. Partnership agreements must be put into writing. It is common for partners to start a business with erroneous assumptions about what the other partner expects from the business.
Each partner's role should be clearly delineated as should his or her contribution in terms of money or other material resources, as well as his or her compensation.
Also, be sure to consider, and reduce to writing, what happens if one of the partners wants to get out of the partnership.
Partnership problems are very common in business. This is not surprising when you consider that two (or more) partners will be spending upwards of forty hours a week with each other-- probably more waking hours than the partners will spend with their spouses. Further, partners must constantly rely on one another's decisions, abilities, and judgments without the recourse of dismissal or any disciplinary action one typically has with an employee.
The only partnerships that I see work are those where each partner has clear areas of responsibility and authority. For example-- one partner is in charge of marketing, another in charge of production, etc. Where lines of authority are fuzzy, partners tend to step on each other's toes and get into bickering, arguments, and, in several cases, fist fights and legal battles.
Tip: In some instances it is easier and cheaper to incorporate a business rather than delineate the terms of a partnership ending. A corporation has preset practices for ownership transfer, election of management, etc. Before getting involved in a long drawn out partnership agreement, ask your lawyer if setting up a corporation might be an easier path to the same goal.
Other Business Mistakes and Misconcetions
- Failure to Prepare a Business Plan
- Myth-- A New Business Must be Based upon Uniqueness
- Overspending
- Momentum
- Starting a Business for Reasons other than Market Demand
- Entering into Partnerships without Clearly Defined Roles
- Not Putting Partnership Agreements into Writing
- Organizing A Small Company as a Large Company
- Misconception-- A Product Can Be So Good, It will Sell Itself
- Not Understanding Your Product's Benefits
- Believing That Experts Have Magic Answers
- Not Pricing Based on Benefits to Buyer
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