It is quite common for someone starting a business venture, to do so with a partner, who will be sharing the responsibilities and obligations. Other times, one will start a business and then decide at a later point that having a partner would be desirable. Either way, it is imperative at the outset that the parties sit down, discuss, and put into writing what their expectations are of each other, in terms of the work each will perform, what the compensation will be, etc. Equally important is what happens when one party is not fulfilling their role or wishes to leave the business. How will the business be valued and what will the means for a pay-out be.
The best solution is to retain a business lawyer to prepare a shareholder agreement or partnership agreement which will clearly and specifically outline the duties of each partner, what the expectations are, what the compensation will be, and what will happen in the event of a death, disability, or retirement of a party. A mechanism for dealing with these life events is essential.
Often, when starting a business, keeping costs to a minimum is key; therefore, hiring an attorney may not be feasible. Additionally, sometimes a partner will be taken aback if it is suggested that an attorney be involved at the outset. If that is the case, it is still absolutely necessary for the parties to put in writing how they plan to deal with the issues which may arise during the course of running the business. For example, what happens if one partner is not honoring their obligations or decides to start another business, which competes with the one you are currently operating.
One of the most contentious issues, in the absence of an agreement, occurs when a partner wants to leave and wants to be paid for his/her ownership interest. The valuation of the business and how the pay-out is to happen becomes a very difficult issue, which often leads to litigation. Even if it does not lead to litigation, there will be a great deal of hostility and it will not be amicable. The best way to avoid this situation is to put down in writing what happens when a partner wants to leave and how that partner will be paid out. This should be done at the very outset of the business enterprise, when the parties are optimistic, eager, and on friendly terms.