Business partnerships and collaborations – Part 1

Bliss

It can be lonely being in business on our own. We might want to work with someone else. Maybe we have met someone and dreamed up a great idea for a business, or perhaps a great product. We have that excitement that comes with the beginning of a relationship. We want to go into partnership. It all sounds like a budding romance, doesn’t it?

I am talking about a business partnership in the usual context, and also about working together through a company. Whatever the strict legal status, the working environment is the same.

A business partnership, especially a small business partnership, is just like any relationship. If we commit to it, it is just like a marriage. So in many ways, the rules of the relationship are the same. We have to live with our partner and be happy that when the initial thrill of meeting someone exciting is over, we still are happy together. After all, there is money involved on both sides otherwise why would we be in business at all?

  • Is the great idea behind our relationship likely to be sustainable?
  • Have we known our partner long enough to know we can work (and be) with them long term?
  • Can we live with their work habits?
  • Are we sure they are reliable and will be where they say they will be and do what they said they will do?
  • Do we know enough about their past?
  • How good are they with money?

You might think that all sounds rather mercenary especially when I compare a business relationship to a marriage. Although all marriages whether business or personal are exciting, they are also about willing compromise and working round each other in a happy way. If we can do that, it’s bliss, isn’t it?

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Why DIY contracts, partnership and shareholder agreements are bad news

It may be one of my recurring themes, but sometimes I am really surprised at how often I have to mention the problems with using someone else’s template or altering up another contract to save professional fees. I do not think I protest too much. This is not because I want to protect the income of the legal profession or some in my own line of business. It is just that there is no substitute for paid professional and insured advice.

I frequent quite a few on-line forums and am a member of several networks as are many of us. Time and again I see people asking for drafts of contracts for clients, of Non-Disclosure Agreements, Patent Agreements, of Partnership and Shareholder Agreements. In fact you name it and someone is trying to save money with some DIY bit of paper.

I have mentioned elsewhere that faulty partnership and shareholder agreements can be costly in terms of tax, but I have also seen a situation where an amateur partnership agreement led to dissident partners gaining an interest in the land and premises of the business which were owned by the other partners, simply because of some vague wording as to the interest they acquired upon introducing partnership capital.

Most of the agreements we may enter into in this area are supposed to define our rights. The time when these become most important is when the parties fall out, there is a dispute or disagreement or someone reneges on their undertaking. As soon as there is a major break up of a business, every party and especially those in breach of their agreement will be out for everything they can get; that is human nature. Unfortunately that may be a lot more than some deserve. There will be winners and losers and those who were trying to honour their part may end up the losers. The important thing is to know always and exactly what every party is entitled to.

Bizarrely I have even seen situations where amateur contracts have been exported and have been supposed to have the same meaning in another land. The law in the other country will be different and anyway an agreement in one language may lose something in translation in the eye of a judge, who may anyway have to rule that the law of the second country trumps the agreement anyway.

If it might rain and you need an umbrella, do you try to make one copying someone else’s design? No, you buy one that suits your purpose and your needs and from an experienced manufacturer of brollies. Why should it be different when people need a legal agreement?

Have you heard some sorry tales re dodgy contracts? I would be interested to hear your views.

© Jon Stow 2010

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Related posts:

Why we SHOULD reinvent the wheel – business agreements and contracts

Pitfalls in faulty contracts – partnership and shareholder’s agreements

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