“Business and friendship don’t mix” is advice that many experienced business owners give to new entrepreneurs. It’s more than an old cliche, though. Statistically, business ventures that involve the partnering of friends have a higher failure rate in comparison to other business partnerships. On the other hand, many local businesses have flourished (when others have failed) because the owners were friends when they formed their company. Why do some succeed, and some don’t?
Read on to learn the practical solution that may save your company, your friendships, and, possibly, your sanity.
Under Florida law, there are no legal formalities to start a partnership with a friend. However, I strongly advise you and your friends to carefully think through your business plan, then draft and sign a legally binding agreement that clearly spells out the terms and conditions of your partnership. This often-overlooked document will go a very long way in protecting your personal and business interests in the event a dispute arises with your business partner. If there is no written agreement in place, there are some “default rules” contained in Florida statutes, but they are a not particularly fair (for either side) and a very poor substitute for your own judgment.
Your Friend/Partner Agreement should address a few common legal issues that will arise in the course of doing business such as: How and when do you actually get paid? Can new partners join the partnership? How will it all work if a partner wants to leave? What happens if one of the partners is seriously injured or (gulp) dies? These questions are not easy, but savvy business partners make sure they know the answers.
As a company, you should prepare for the worst case scenario (ex: costly litigation) arising in the event that your partnership venture fails. An experienced business attorney can help you create, understand, and use an “exit strategy” which is intended to preserve the business, and possibly the friendship. For example, a business attorney can draft certain provisions into your partnership agreement that show how legal disputes should be handled amongst the partners. A wise attorney once told me “The ride is always smoother when everybody knows where the emergency exits are.”
Always contact a business attorney to discuss the legal risks and benefits of joining a business partnership with a friend. A failure down the road may result in the loss of your money, but it may also cost you a friendship. You and your company may go through many transactions in your lifetime, but you won’t get nearly as many close friendships. Spending some time with a business attorney to help you (and your friends) decide how you will treat each other (good times or bad) is probably one of the best investments your company will make.
The Law Office of Brandon Woodward P.A. is eternally grateful that you have visited our website or read our blog. The materials and information contained here are provided for informational purposes only and are not to be considered as legal advice. For questions about startups, founding documents, corporate agreements, business entities or any other legal issues facing your business, EMAIL US, and we’ll set up a consultation.