10 things to consider before taking a partner for your business

Before taking in a partner, new member to your CC or a new shareholder in your company there are some important considerations you need to take into account:

  • The partnership should be governed by a partnership or shareholder agreement drawn up with the assistance of a lawyer. Although it might seem a waste of money, it will assist you when conflict emerges because of differences between you and your partner.
  • Be careful of taking on friends and family as partners. Although you might get along well, business should be about business and some straight talk will sometimes be needed.  A family or friendship relationship might impede honest communication between partners because of a fear of hurting each other’s feelings.  Many business partnerships have ruined friendships and have caused family members to end up not talking to each other.
  • Each of the partners’ roles in the business should be clarified before the partnership happens as well as the share each will have in the business.
  • Profit sharing and the amount of money that should be left in the business after profit sharing should be thoroughly discussed and agreed to.
  • The salary each partner will take should be clarified before the new partner becomes part of the business.
  • You should only take on a partner that share your commitment and has the same vision as you for the business. For example, frustration will arise if you want to grow the business as quickly and as large as possible and your partner is content with only earning a certain income and have the business grow to a certain level.  This might be especially true if you take in a partner that is on pension and he/she is only looking for an income to supplement his/her pension.
  • Partners should complement each other. Think of the skills and knowledge needed in the business and try to find a partner that brings those skills and knowledge that you do not possess into the business.
  • You and your partner will have to decide who will be in charge. There has to be a person who takes the day-to-day decisions in the running of the business.
  • Consider if there will be a time limit to the partnership and if a partner will be “bought out” when the business reaches a certain stage. How will the exit happen and what will be the financial obligations of the other partner/s?
  • Consider taking out life insurance on the lives of all partners and cede the policy to the other partners. This insurance can be paid by the business.  It will enable the remaining partners to buy out a partner’s share if he/she should die.  If you want to continue with the business after a partner’s death, you do not want to sit in a situation where you have to pay out that partner’s share to family from business money or end up with a partner who have no interest in or do not contribute to the operations of the business.


From the above it is clear that there is a considerable amount of negotiating to do before finally agreeing on taking on a partner.  Best is to use your lawyer and accountant to assist.


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