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How to choose the right business partner

Richard Rodgers and Oscar Hammerstein. William Hanna and Joseph Barbera. Steve Jobs and Steve Wozniak. Bill Gates and Paul Allen. Keith Richards and Mick Jagger. There’s an abundance of successful business partners scattered throughout history – but how did they know they had chosen “the one”?


There are many similarities between choosing a business partner and a romantic partner – it’s essentially someone you’ll be spending a big chunk of your precious time alongside and will want to find that much sought-after relationship harmony with. And, as with any partnership, you run the risk of being hurt and going through a messy separation.


When making a business partnership commitment, it’s especially important you look beyond any flashy chit chat and really delve into the personality of your prospective partner before “jumping into bed together”.


Trust


Trust should form the basis of any partnership. If you don’t fully trust your business partner, how will you ever relax? Do you want to be constantly checking their work or looking over your shoulder? Not trusting someone can lead to disillusionment and dishonesty. As with any relationship – personal and business – trust is key.


Values


What shared values do you have? If push came to shove, what would be the one thing you’d both be unwilling to change under pressure? Think about your potential business partners morals and integrity.


Communication


Commonly known as the single biggest factor in the breakdown of partnerships. Are you able to communicate openly and freely with your business partner? Will conversations be honest?


Complement each other


Not in an ‘oh I love your shirt today, Jon’ kind of way, but complement your business partner in terms of personality. Often in business startups, they’ll be a person with a great idea – but they’ll need someone to complement their skillset to get the idea in motion.


An example of this is Steve Jobs and Steve Wozniak. Jobs was very much the creative visionary who lacked some of the technical wizardry that Wozniak could provide. Together, they formed an ideal partnership – one was the creative and business mind, the other supplied the technical knowledge.


Consider this when looking for a business partner – do you really need two business minds with zero creative input managing the business? Being able to complement each other’s personality will produce better business harmony.


Respect


Will you be able to give your business partner the respect they deserve? However outlandish, leftfield and bizarre their thoughts, ideas and musings are?


Company structures


Put simply, a business partnership is where two (or more) people share management and profits of a business. There’s many different types of business partnership – each having different levels of business liability for the partners involved.


Once you’ve committed to your business partner, it’s time to decide specifically which type of business partnership you’ll enter into. Perhaps you’ll decide that you and your business partner want to form a limited company. For this, you’ll need to ensure you have a shareholders’ agreement. This document is important and will ensure that should a company need to sell shares, these are done fairly. The shareholder agreement also stops shares being diluted and allows for even staff share distribution.


Two person limited company


A two person limited company is just that: a business formed by two people, who are both the main shareholders and Directors of the business. The company must be registered and incorporated with Companies House. An advantage of this type of company is that the shareholding is easy to manage and fairly simple to change if need be.


For example, Terry and Dave form a limited company ‘Happy Happy Design School’. They both become directors of the company and take an even 50/50 share split.


The proportion of the business that Terry and Dave have ownership of doesn’t affect their salary – Terry and Dave are able to pay themselves however much they would like. There are a number of different ways that limited companies can pay themselves and this depends on the individual requirements of the business.


General Business Partnership


Let’s say that Dave and Terry want to start a graphic design company. They choose to enter into a general business partnership and draw up a partnership agreement. Depending on the share profit agreement, both Terry and Dave will be equally responsible for the running of the business. Both will be eligible to receive any profit the business makes and both are liable for any business debt.


The advantage of this general partnership is that both Dave and Terry will both be classed as self-employed. For example, when drawing up their partnership agreement, they decide that Dave owns 60% of the business and Terry 40%.


The graphic design company makes a profit in their first year of business of £100,000 – Dave would take home £60,000 and Terry £40,000. Both would then have to do a partnership ship return before filling out their end of year self-assessment and be taxed inline with income tax and National Insurance.


There are, of course, disadvantages to a general business partnership. You are both liable for any debt the business produces. What if Terry secretly runs up hundreds of thousands of pounds worth of debt on a company credit card? Dave would have to help foot the bill – as he is as responsible for the debt as Terry.


Limited liability partnership


A limited partnership is similar to a general partnership. However, those that are a limited partner will have different liabilities. The limited partners in the business are liable for up to the amount they initially invested in the business.


If you’re a professional i.e. an accountant, a doctor or a lawyer, then entering a limited liability partnership (LLP) might be the type of partnership for you.


Managed much like a general partnership, the partners in an LLP all have a say in the running of the business. Each partner has full limited liability and there is no risk to personal assets.

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