
Starting a Business with your Spouse or Friends 2 years ago
When looking for business partners, one often goes to their families, friends, and spouses. But just like any other partnership, there are things to consider in avoiding unforeseen circumstances.
After all, business partnerships and marriage are similar in several ways. It requires commitment and communication. Thus, working with people with whom you share similar passions and values is very important.
Here are the things you should consider when starting a business with your spouse or friends.
1. Type of Business and partnership
When people start a partnership, they think of a general partnership that includes at least two owners with the same responsibility and assumes all liabilities.
But there is another type of partnership, known as a limited partnership, with partners that primarily serve as investors and are not subject to liabilities like the general partners. This is very important to consider in order to figure out how the company will be managed in the long run.
Most partnerships however actually form a corporation. But not that they do not have some of the drawbacks of partnerships, such as the freedom of partners to dissolve their partnership at any time, which is not the case with corporations. Corporations can also easily sell capital to new "partners" by issuing shares.
2. Financial Plan
Money is one of the common problems in business, but it is also important, especially in starting a venture.
Consider how you will source your income and have a discussion about the following:
-
Investment plans
-
Allocation of Budget
-
Borrowing & Debt
-
Expenses
-
Salary
3. Equity
Apart from investments, come to terms with your partner on how you will distribute the ownership of your business. There are different kinds of partnerships. It doesn't always have to be 50/50.
Instead, consider distributing the equity depending on the amount of money invested or work contributed. Hence, it should be clear and agreed upon by both parties.
Factors to consider in distributing equity are usually:
-
Who had the idea
-
Who gave the capital
-
Who has industry experience
-
Who is going full time
-
Who has the larger opportunity cost
-
Who will generate the income
4. Legally binding agreements
When starting a business, whether with your trusted friend, or family, it is still advisable to establish legally binding agreements such as the founder's agreement and partnership agreement. For couples, they may also consider having a prenuptial agreement.
These are to ensure that everyone involved in the business will perform according to what they are expected and to avoid conflict concerning ownership.
It may seem unnecessary, but it is the ideal approach to protect the rights of both partners and act in the company's best interests. You can come up with a mutually acceptable agreement with the help of an attorney.
5. Conflict Management
Although conflicts in business management are inevitable, they can still jeopardize the business and eventually have a detrimental effect if unresolved. Whether it involves your spouse or a friend, avoid taking disputes personally and consider having an agreement where confrontations will be managed rather than avoided. There should be a clear dispute resolution and exit mechanism agreed ahead of time.
It is important to note that business is business. Everyone involved has to be professional when managing one.
Suppose a business partnership between family members or friends is done effectively. In that case, it can be rewarding and successful–but when done poorly, it can permanently sever all ties and, worse, break relationships.
When you find the right partner and are both ready to start your dream business, you can head on to Digest.ph to find resources to help your venture.
AIC Grande Tower Garnet Road
Ortigas Center, Pasig City
Metro Manila Philippines
Mobile No. +639451244898
digestph@gmail.com
Please read our FAQ before contacting us.