Brad Nakase, Attorney
Thinking of joining a business partnership? While becoming a partner in a company is exciting, you should also do several things beforehand. We have you covered in this article about adding new members to existing business partnerships.
Becoming a Small Business Partner: An Overview
When entrepreneurs decide to join a small business and become a partner, they are making an important decision that will impact their careers and their entire lives. A business partnership occurs when two or more parties join together to operate a business. Sometimes, the business owners are open to adding another member, or they are actively searching for someone with specific talents to complement their company’s chemistry. Other times, you will find that an eager entrepreneur has been searching for the right opportunity in the industry of his or her choice and is excited to become a partner and a partial owner of a chosen business.
Based on how the business was initially incorporated, entrepreneurs who are eager to add another partner will need to be prudent as they navigate the ins and outs of the process. Here, we will concisely outline what actions need to be taken, tasks that need to be completed, and issues that need to be confronted in order to prepare to add a new partner to an existing company.
While this process can occur in various ways, it is common in the business world. More often than not, a business partner is added to an existing partnership for a compelling reason: in order to grow the business. When a sole proprietorship, for example, becomes a partnership, things change quickly. Things also change when a small company becomes more extensive due to personnel additions. The transition period that occurs when adding new members to existing partnerships can be difficult, and while some of these new partnerships flourish, some of them also struggle.
Here, we offer a mix of guidelines and recommendations for the moment when this critical time arrives. Since this could be a defining moment in your business career, it makes sense to be prepared, aware, and fully ready to become a small business partner or to welcome a new partner to your company.
Tip 1. Becoming a Small Business Partner: Questions for the Entrepreneur
Many times, our workdays are filled with asking questions: of employees, co-workers, and even co-owners. However, one process we sometimes miss out on is that of asking questions of ourselves. Taking a few minutes to reflect on a decision such as becoming a partner in a small business can clarify your thoughts and help you focus on the ins and outs of the entire process.
Here are a few common questions entrepreneurs ask themselves before taking the leap and joining a new company:
- When you read the By-Laws and read over the Operating Agreements, did you get any sense of favoritism, unfair tactics, or immoral ideas from the partners?
- Are you aware of any outstanding or pending lawsuits or legal actions involving the partners or the prospective business, or is there any evidence that this will occur?
- Do you see evidence of an efficient system of internal oversight within the company that will ideally prevent any occurrences of fraud?
- When considering the integrity of the business’s financial health overall, is transparency evident?
- Is the business’s overall value secure from uninvolved or disinterested partners?
- When partners contribute capital to the business, is the money protected?
- How will becoming a small business partner impact the taxes of the new individual?
Tip 2. Becoming a Small Business Partner: Steps to Take Before Forming the Partnership
Here, we offer a few crucial steps you should take before signing on the dotted line.
Find Legal Representation
It is essential to be able to protect oneself when joining a new business. From going over contracts and agreements to providing guidance on important decisions, a business lawyer can provide essential support when entrepreneurs join existing partnerships.
Put it in Writing
When an individual joins a collective such as a business, they enjoy the profits and take responsibility for the debts. While becoming a small business partner is usually an intelligent move, it can also prove to be risky. Therefore, we recommend that every aspect of your new relationship with the company be backed up in Writing, including expectations, duties, goals, responsibilities, finances and paychecks, and all contracts, agreements, and other documents. Written records are essential if anything goes wrong and legal action results.
Do the Research
At the beginning of the new partnership, the savviest entrepreneurs know that reading, research, and making calls all come in handy. The key here is to seek out information and knowledge about your future company and your future partner or partners. Every business person has business associates, former clients, former partners, and former co-workers or co-owners, so contact them immediately. These individuals will give you a solid sense of the person or people you are joining and perhaps a sense of the state of the company as well. Another thing you can do at this point is to check out their social media profiles or search them out on Google or Bing.
Do Not Forget About Your Own Brand
Merging brand identities can be just as challenging as expanding a business. Often, an excited partner will join a new business and then struggle to connect with the brand, the aesthetic, and the company’s primary identity. Even worse, the Entrepreneur might begin to lose focus on their own ambitions and objectives and become a blank page. The key here is to maintain your own vision and sense of goals at all times while learning about another company and brand in the process. Who knows, you might learn something that will help out your business career later on.
Arrive at an Exit Strategy
Considering the nature of one’s exit strategy can be difficult, but unfortunately, it is necessary. The business world is just like life, and while incredible things happen, difficult things do as well. In this way, the analogy of a business partnership to a wedding is also apt because while many weddings survive, those that do not end in divorce. No one plans their divorce, but they often wish they did.
Leaving all comparisons aside: it is essential for a new business owner to have their exit strategy thought out and planned out, so they are not left behind if death or dissolution occurs. A solid exit strategy should include the rules regarding how the deceased partner’s business holdings will be handled and how the company’s assets will be divided.
Protect Your Own Interests
Depending on its size and the preferences of the owners, a business partnership can be structured in a variety of ways, from an LLC to a sole proprietorship. Regardless of whether your business is incorporated or not, individuals who are joining small companies should be prepared to protect their own interests. The key here is for entrepreneurs to protect their cars, homes, savings, and other valuable interests and items from the liabilities that are associated with the company.
Tip 3. Becoming a Small Business Partner: Choosing Wisely
Did You Make the Right Choice?
Ideally, adding a new partner to an existing business comes with a plethora of benefits. The individuals running the company by themselves are usually happy to have someone to share the work with and grow and expand the business. Plus, new members are generally excited to be setting sail on a unique opportunity with a new colleague or series of partners.
However, it is vital to make sure that one’s new partner is the appropriate fit for your specific business entity and vice-versa. Sometimes, you may enjoy spending time with someone socially, but they turn out not to be the right fit as a business associate. Ideally, you will carefully vet the partners and owners in the prospective company and speak with them about any issues you may anticipate.
Collaborative Work is Crucial
In turn, company partners should be prudent about who they add to their companies and wise—not to mention honest—about the reasons why they wish to add a partner. Small business owners should also understand that great businesses are not always built with individuals who are similar. Instead, great partners complement each other and are worth more than their individual parts together. When business partners work collaboratively and balance each other’s weaknesses and strengths, a more dynamic business is created. One of the keys to an excellent partnership is balance, and another essential quality to have in a business union is communication. When partners are open about their business strengths and the areas in which they want to improve, and their overall visions for the company, good things happen.
If, for any reason, you feel unsure about the new partners at your company, make sure to discuss your plan with a lawyer, mentor, colleague, or even family member. Get your concerns out in the open. This will allow you to make an informed decision about the future of your valuable business. Also, speak to your prospective colleague and partner about any concerns that you have, and ask them to do the same. The point here is to not take this decision lightly. You have worked diligently to build a successful company over the years, so before you add a new partner to your existing business, you should be entirely sure it is the right move.
Tip 4. Becoming a Small Business Partner: A Few Tips for the Start of the Partnership
The Beginning Matters Most
Every business owner hopes for a smooth, efficient start to a new partnership. When the partnership runs well from the beginning, it makes it much easier to focus on all of the other aspects of the business, from increasing sales and leading to raising revenue. Here are a few ideas that might help your new partnership begin its business journey successfully.
Focus on Building Trust with Your Partner
If you cannot trust your partner, you literally have nothing. Trust is the force that binds all relationships together, and business partnerships are no different. Ideally, before you became both a partner and an owner of the company, you felt confident you could trust your new partner. Why else would you have volunteered your resources, time, money, and intelligence? However, there is always a transitional period when companies add new partners and the new members get to know each other. So, focus on getting to know your new partners and building trust the old-fashioned way: by speaking to them, working beside them, and building relationships.
Scale Down: Work on a Minor Together Project First
In the past, you have probably worked on various projects for many hours alongside trusted colleagues. However, joining a business partnership will present you with a much different set of circumstances. When you do not know your partner as well as you should, it can be hard to start a long, arduous project together, especially one that is vital to the company’s success. Therefore, our recommendation here is to partner up on a smaller, more minor project together first. Why? Through this process, you will be able to begin to understand the way your partner works and the positive and negative qualities they bring to the company. Human beings are complex, and while you may not have a complete understanding of this person yet, working on a small operation together can clue you in as to whether you are making the right choice.
Use Power to Find Power
Business experts recommend that entrepreneurs refrain from joining a partnership until they have reached a certain sense of financial and career independence. Likewise, the partner or partners you are hoping to join should be successful in their own right and not waiting desperately for you to join them. One should always embark upon a business partnership from a position of strength and well-being. If this does not occur, the business union can become reliant on an unhealthy, co-dependent aesthetic, and business dysfunction can soon follow. However, when two talented, self-realized entrepreneurs unite for the sake of a grand vision, one that is grounded in great ideas and is not based on inflated expectations, then greatness can occur.
Add Partners Who Have Value and Add Value
As any business grows, it becomes necessary to enlist new employees, managers, and owners to run the company. From daily busy work to scouting out new leads, there is always a task to complete or a conversation in the fast-paced business world. While bringing on a new employee is usually marked as an addition to the company, bringing on a new partner is meant to add to the business and multiply it several times. Quality business partners add value by providing complementary skills to their counterparts. Business owners search out these skills when they need a new member; for example, when a restaurant needs help in the front of the house, they look for someone with a different resume than their head chef. The key here is finding a business partner who effortlessly fits into the business and creates a new sense of dynamic synthesis. When everyone is happy and the company is running effectively, then it is fair to say that adding the new partner was a smart idea.
Contact a California Business Lawyer Today
If you need help with becoming a business partner, please get in touch with our California business lawyers & corporate attorneys today. We have advised both individuals and companies as they grow their businesses and add new members. At Nakase Wade, we understand what the process entails. Our corporate attorneys and business lawyers can help with everything from contracts to operating agreements to general advice regarding running a business and adding a new partner to the team. In addition, we offer free consultations, so get in touch with the skilled, experienced California business attorneys at Nakase Wade today.