I Want to Divorce My Business Partner!

Starting a business partnership is like getting married. In the beginning both people are happy, excited and in love with their great business ideal that is going to make them millions! The happy business partners are like newlyweds, acting like they are soul mates who are destined to be together forever. Both are on their best behavior, helpful, and complimentary to each other. They have become so connected over the ideal of success that they finish each others sentences.

Unfortunately, many people pick their business partners like they pick their spouses, on superficial qualities. They do not spend the time or make the effort to check the other person out.

When considering a general partnership you should have crystal clarity about character, personality, skills, talents, experience, and established business contacts. Find out about his or her reputation among his or her peers – people talk and it is easy to find out if someone has a questionable past.

A general partnership is when 2 or more people form a business together and each person shares unlimited liability for the debts and obligations of the business. Partners are essentially investing their credit, lively hood, time, energy and resources in part, in someone else.

Even if you know the other person well, or so you think, conduct a thorough background check on him or her:

- Pull his or her personal and business credit
- Check references – past employers, past business partners, customers, and employees
- Verify assets and the source of his or her investment into the business
- Review his or her resume looking for education, experience, and other credentials

After you are satisfied with your findings, then draft a partnership agreement. Remember that both parties are jointly and severally liable, creditors can come after your personal assets to collect on a debt. The partnership agreement is important to protect the interest of all parties in the business and should address:

- How to divide assets – all partnerships are not treated like community property – each partner may be entitled to a different percentage.
- Buy-out terms – when the partnership (marriage) is over, one person has to buy out the other partner based on the value of the company and the percentage of their investment.
- Customer Accounts – will they stay with the business or does the partner leaving have the right to take them with him or her?
- Disaster- in the events of divorce (of one of the partners), disability, or death, what will happen?
- Rights to intellectual property – who owns them?

It is also advisable to draw up job descriptions for each partner so both parties understand his or her duties and responsibilities to the company.

Finally, get the proper insurance – general liability, auto, workers’ compensation, and Errors and Omissions. Just like married couples, if one messes up, both have to pay for it.

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