How to Become a Partner in an Existing Business
A business partnership is when two or more parties come together to own and operate a business.4 min read
Updated October 26, 2020:
Many want to know how to become a partner in an existing business. A business partnership is when two or more parties come together to own and operate a business.
Things to Consider Before Becoming a Business Partner
As an entrepreneur, at some point, you may consider bringing on a partner to help grow your business. Most business partnerships begin with excitement, however. That excitement eventually fades away.
Here are a few important steps to take at the beginning of forming your partnership:
- Do Your Due Diligence: When it comes to signing contracts and getting down to business, make sure you call former partners, business associates, and former clients of the person your thinking about partnering with, as well as look into reading the comments on their social media profiles or Google search them.
- Lawyer-Up: When you partner with someone, every aspect of the business relationship should be put in writing -- including, business goals, duties, responsibilities, and expectations.
- Exit Strategy: Planning an exit strategy at the beginning of starting a business partnership is similar to planning a divorce during the wedding, but should still be planned nevertheless. A strategy such as this should include how you will divide the assets of the company, as well as how the partner's portion of the business will be handled in the case of death.
- Protect Yourself: Regardless of how you choose to structure your business, whether that be incorporating or forming an LLC, you need to decide how you plan to protect your savings, your home, your car, etc. from any liabilities associated with the business.
- Don't Lose Touch With The Brand of Your Business: Sometimes joining forces with a partner after a business has already been formed can be more difficult than if you were to have started the business together from scratch. In other words, merging entities don't necessarily mean merging identities. In short, don't lose sight of who you are and what your company stands for.
What to Know Before Partnering With an Existing Company
Here are a few questions you should ask yourself before becoming a partner in an existing company:
- Does the company have any pending or outstanding lawsuits, or is there any possibility for such cases to occur in the near future?
- Is there is any evidence of unfairness or favoritism among partners in the Operating Agreements or By-Laws?
- Is there transparency when it comes to the integrity of the company's overall financial health?
- Is there an appropriate system of internal oversight in place to prevent partners from committing fraud?
- Is the value of the company protected against disinterested or uninvolved partners?
- If you're contributing capital, is that money protected?
- What are the tax ramifications for your personal stake in the company?
How to Ensure a Partnership Runs Smoothly
The following are some tips to help ensure your business partnership can run as smoothly as possible:
- Consider Working on a Small Project Together First: Just as hastily getting married without dating someone first can end up with serious repercussions, so too can entering a business partnership with someone you hardly know. By first partnering on a small project together it can help you to learn about the good and bad sides of your potential partner, and thus be able to determine from that interaction whether or not the long-term partnership is worth pursuing or not.
- Don't Partner With Someone You Can't Fully Trust: Trust is the glue that holds every relationship together, especially a business partnership. If you are not able to trust your potential partner completely, then the partnership will never work. Before ever entering a business partnership with someone, make sure you are doing so based on a solid foundation of trust.
- Enter a Business Partnership From a Position of Strength: You should never enter a partnership until you and your potential partner have reached a level of independence. If not, your relationship will be built on co-dependency, and thus operate from a state of dysfunction. With that said, a dysfunctional company is one that will always struggle to properly serve their customers effectively.
- Enlist Partners That Multiply The Business, Not Just Add to It: Bringing on a partner is not to be confused with hiring an employee -- employees add to the business, but a partner multiplies it. You want a partner who complements you and is able to provide skills and/or connections that you do not necessarily possess. The key is to find someone who you are able to work in harmony with, that way you'll be able to make beautiful music together.
If you need help with becoming a business partner, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.