How to Protect Yourself if You Have a Business Partner

BizAge Interview Team
Business partners

It’s often the case that two heads are better than one, so getting together with a business partner is a smart choice for many entrepreneurs, right? Well yes, if things go smoothly, but they often don’t which is why you need to protect yourself if you shack up with a business partner. Here’s how to do that.

Get Everything in Writing

First rule of protecting yourself with a business partner: get it in writing. Verbal agreements are fine until they’re not. Draw up a partnership agreement that details who does what, who gets what, and what happens if someone wants out. It’s like a prenup for your business.

Separate Personal and Business Finances

Keep your personal finances out of the business account. It's like keeping your socks separate from your underwear—it just makes life easier. Have clear records and separate bank accounts to avoid any financial entanglement that could turn messy.

Define Roles and Responsibilities

Clear roles save lives—or at least businesses. Make sure you and your partner know who’s the brain and who’s the brawn, or who handles sales and who manages operations. This prevents stepping on each other's toes and ensures you both dance smoothly.

Regular Communication

Keep the lines of communication open. Schedule regular meetings to discuss business progress, concerns, and any new opportunities. Think of it as couples therapy for your business. Regular check-ins keep small problems from turning into big ones.

Have an Exit Strategy

Not to be a downer, but what if one of you decides to call it quits? Having an exit strategy is crucial. It outlines how a partner can leave, what they’re entitled to, and how assets are valued. It’s the business equivalent of knowing where the emergency exits are.

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Consider Buy-Sell Agreements

This is a must-have, especially if you don’t fancy being partners with your buddy’s next of kin should the worst happen. A buy-sell agreement controls what happens to a partner’s interest if they die, become incapacitated, or leave. It's like a game plan for unexpected plot twists.

Watch Your Wills

Speaking of plot twists, you’re going to want to engage a deceased estate lawyer to make sure your interests are protected in case of a partner’s death. They can help navigate the complexities of estate law and ensure the business continues smoothly without legal hiccups. Think of them as your guide through the business underworld.

Insurance: Don’t Skimp

Insurance might seem like an unnecessary expense until you need it. Look into key person insurance or life insurance policies that cover each partner's interest in the business. It’s not just about peace of mind—it’s about financial stability.

Resolve Conflicts Professionally

When disputes arise, handle them like the professionals you are. Consider mediation or arbitration before things escalate to courtroom dramas. Save the theatrics for your annual company party.

Remember, having a business partner is a bit like marriage; it takes patience, communication, and a whole lot of paperwork to make it work. By setting clear expectations, preparing for the unexpected, and keeping communication channels open, you can protect both your business and your personal interests. So here’s to fruitful partnerships and keeping the drama to a minimum! 

Written by
BizAge Interview Team
May 8, 2024
Written by
May 8, 2024