Going Into Business With Someone? Here’s How to Protect Yourself

Going into business with someone can be beneficial because sharing the workload, responsibilities, resources, and skills between multiple people is much easier than going it alone. However, it does open up the possibility of losing money, damaging friendships, and derailing your career if the business partners have a falling out.

Fortunately, there are several strategies to prevent this from happening and ensure that you reap all the benefits while avoiding the pitfalls of going into business with others.

Strategy #1: Choose the Right People

I have seen too many companies fall apart after business partners realize that their resources and goals don’t align. Sometimes, the person you’re closest with doesn’t necessarily make the best business partner. When choosing the right business partners, think about the following factors:

• Do you have a shared vision of where you want your business and career to be in the long run?
• Do you have a shared vision of the roles of each person within the business hierarchy?
• Do you have shared values and ethics of how a business should be run?
• Do you have shared intentions of how to use business profits, whether it be to fund your lifestyle or reinvest for business growth?
• Do you have an agreed idea on what each other’s workloads will be like?
• Do you have open communication and feel that you can be completely transparent with each other?
• Do you have shared expectations of your day-to-day routines and running of the business?
• Do you have complementary skills where you understand each other’s strengths and weaknesses?
• Are your potential partners financially stable and able to properly manage their money?
• Are your potential partners reliable and committed to the business for years to come?

Take your time when choosing your business partners and defining their roles. Don’t rush this decision. Have deep, honest conversations about all these factors before moving forward.

Strategy #2: Create and Review Your Shareholders’ Agreement Regularly

A shareholders’ agreement is one of the most important documents your company will ever have. Think of it as your business’s rulebook—it outlines everyone’s rights, responsibilities, and how the business will operate day-to-day. This makes cooperation much smoother and prevents misunderstandings down the road.

Never assume that your partners will “know what you mean“ or automatically agree with your ideas. Even the most obvious expectations should be written down. You never know when you might need to refer back to it!

Your shareholders’ agreement should be reviewed whenever something significant happens in your business. This includes things like:

• Expanding the business
• A partner joining or leaving
• Making major investments or acquisitions
• Changing your management structure

It‘s also smart to review the agreement periodically, even when nothing major has happened. This gives you a chance to reflect on what’s working, what isn’t, and whether any adjustments would help the business run more smoothly.

Strategy #3: Have a Backup Plan

Sometimes, despite your best efforts, a business partner may need to leave the company unexpectedly—whether due to disagreements, death, disability, or bankruptcy. The good news is that you can plan ahead for these situations.

Business insurance is always a smart safety net to have in place.

 Your shareholders‘ agreement should also include an exit strategy that spells out how partners can sell or transfer their ownership and leave the business. You might also want a separate buy-sell agreement, which is a document that determines how ownership gets transferred when certain events happen (like death, disability, or retirement).

 Having these protections in place means you won’t be caught off guard if something unexpected happens.

Creating a company is a complicated process. You need to consider every factor and possibility when putting one into place, especially whether you want to be a part of the shareholders company in the first place. These business structures can be very successful and bring in a major profit, as long as both everybody involved know how to protect their interests.

If you have any questions about starting your own company, please do not hesitate to contact me. I am here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.