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Business Partnerships: Hope for the Best and Prepare for the Worst

Guest post by: Kenneth C. Halkin

Article Overview: In this changing economy, small businesses will grow and thrive through partnerships, affiliations and collaborations. Partnerships take many forms. Whether joining together to form a new business, merging or consolidating existing businesses, bringing new partners into an existing business entity or developing working collaborations between separate business entities, choosing the right partner(s) and developing a comprehensive written agreement, are critical to assure success and minimizes the damage, should any of a number of worst-case scenarios occur.

Business Partnerships: Hope for the Best and Prepare for the Worst

In this changing economy, small businesses will grow and thrive through partnerships, affiliations and collaborations. Partnerships take many forms. Whether joining together to form a new business, merging or consolidating existing businesses, bringing new partners into an existing business entity or developing working collaborations between separate business entities, choosing the right partner(s) and developing a comprehensive written agreement, are critical to assure success and minimizes the damage, should any of a number of worst-case scenarios occur.

Choosing the right partner or partners involves assuring that the parties:

1. Share a common vision for the purpose, mission and goals of the partnership;
2. Share compatible business values;
3. Have compatible personalities or cultures;
4. Share a common understanding of each parties roles & responsibilities;
5. Share a common understanding of the financial arrangements and compensation; and
6. Agree on the rules of participation and expected conduct, and on the consequences of violating those rules.

These issues can easily be explored through a simple due diligence process which is best facilitated by an objective, impartial and experienced third party. The facilitator must be able to determine each party’s positions, opinions and interests as it relates to at least the above issues and identify points of alignment and potential conflict. Points of potential conflict must be discussed, debated and negotiated to all parties’ mutual satisfaction, in order to maximize potential for success of the new partnership. In addition to seeking alignment, this exercise will provide practice at and an assessment of, how the parties will work through disagreement and make decisions in the future.

A comprehensive written agreement must address all of the above, plus the following “what ifs”:

1. One partner wishes to withdraw or sell their interest in the business;
2. One or more partners wish to remove another partner;
3. One partner dies or becomes disabled;
4. One business entity fails or the partnership entity fails;
5. A partner retires;
6. Partners are unable to reach agreement on one or more critical business decision;
7. A partner is divorced and his/her stock becomes divided property;
8. A partner is determined to be in violation of the rules of conduct or is not performing according to expectations.

This agreement may be in the form of a Partner Agreement, an LLC or LLP Operating Agreement, a Stockholders’ Agreement, a Merger Agreement, an Affiliation Agreement, a Co-Branding Agreement, a Joint Venture Agreement or a number of other forms of business affiliation arrangements. The facilitator of the due diligence process, should be able to guide the parties through the decision and negotiating process necessary to develop such an agreement.

In the end, a qualified and impartial Business Attorney will need to translate the results of these negotiations into a well constructed legal document and assure that all parties understand the legal implications of the key terms and conditions. A qualified and impartial CPA should also review the agreement to address and optimize tax consequences and to address accounting and accountability issues. The Facilitator/Business Advisor should be able to arrange for and manage these other advisory resources.

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Article Tags: Business Advice, Business Affiliations, Business Collaboration, Business Partnerships, Consolidations, facilitating mergers, Facilitating partnerships, Forming Business Partnerships, Mergers



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