Business Partners Blue Paper

4imprint.com

Bus iness Par tners

© 2014 4imprint, Inc. All rights reserved

F inding Mr. or Ms. Right: How to f ind a business partner

Committing to a business partner is a big decision. It’s a lot like getting married

and most don’t recommend rushing into either one too quickly. After all,

choosing the wrong partner could damage your business and a separation could

be costly. And sadly, research shows most business partnerships end in divorce—

estimates from 2011 found that a shocking 80 percent don’t make it.1

That’s probably why an estimated 72 percent of small businesses get cold

feet when they consider forming a relationship with a business partner and

subsequently remain sole proprietorships.2 Yet, if done correctly, the right

business partner can be a match made in heaven. Although finding that

match isn’t always easy … you have a lot of choices, from general to strategic

partnerships, all of which come with their own set of obligations and rules

for decision-making and responsibilities.

You can get a lot of great advice to help you with your decision from companies

that have “been there-done that.” Some have produced products they never

would have been able to otherwise. Others have shared the costs of highly

innovative projects. However some of the less fortunate have found themselves

in lengthy court battles when things have gone wrong. Like most things in life,

there are the good and the bad. Bottom line: There’s a lot to consider when

seeking the perfect union.

This Blue Paper® examines how to determine if a business partner is right for your

company. It will provide you with the questions you should ask before making

this commitment. It will walk through the advantages and disadvantages of

partnerships and outline the main types. The paper will also discuss what to look

for in a partner and what to avoid, as well as provide some simple checklists along

the way to help you through the process.

For better or worse: Partnership benef i ts

To truly be a partnership, you must actually give someone else a stake in your

business. It may mean teaming up with Mr. or Ms. Right to pursue your next big

idea or bringing in the ying to your yang to assist in areas of the business you

need help developing. No matter why you feel you need a business partner,

1 “The 80% Rule of Business Partnerships - The Power of Collaboration.” The Power of Collaboration. N.p., n.d. Web. 10 July 2014. <http://www.petersimoons.com/2013/07/the-80-percent-rule/>.

2 Tabita, John. “Partnerships: Boon or Ruin for Your Business?” SitePoint. N.p., 13 Nov. 2011. Web. 10 July 2014. <http://www.sitepoint.com/partnerships-boon-or-ruin-for-your-business/>.


you really want to make sure you are compatible because you’ll be spending

time together. Just like when you plan a wedding, you can go big or small with

partnerships. Whether choosing someone to help with a portion or division of

your business or to fully share in every aspect, for better or worse, a partnership

can help:

•balance skill sets,

•split costs and share risks,

•develop better ideas,

•share responsibilities,

•leverage greater expertise and knowledge, and

•expand networks.3

When searching for the perfect partner, you’ll want to look for someone

who excels in areas that complement your strengths in order to balance

the business responsibilities. That might seem like a simple statement but

it forces you to be brutally honest about both your strengths and your

weaknesses. That can be a hard thing to do, especially for those that

possess that burning entrepreneurial spirit.

As well as helping balance skill sets, there is often a financial benefit to taking

on a partner. It’s not only married couples that pay less tax—partnerships do, too.

With some forms of partnership, there is no need to file separate tax returns for

the business and its owners, saving not only on taxes but also on the forms you

have to complete. Oftentimes, you can even split your income and avoid double

taxation.4 To learn more about the partnerships’ tax benefits, check out the IRS

site on how partnerships are taxed.

For newer companies, partnering can reduce the financial stress of start-up costs.

And strategic partnerships can provide emerging companies with access to new

tools and technologies. Even large corporations can benefit. Take the case of

partners Coca Cola® and Heinz®, for example. Together, they worked to develop

the environmentally friendly, PlantBottle™ made completely of plant-derived

materials and residues. Coca Cola has prototyped the design and is collaborating

with Heinz for bottling.5

If you are running a business on your own, a partner can help relieve some of the

associated stress by sharing responsibilities. No longer do you have to go it alone

3 “Start a Business with a Partner.” Smarta RSS. N.p., n.d. Web. 16 July 2014. <http://www.smarta.com/advice/starting-up/business-ideas/start-a-business-with-a-partner/>.

4 Latham, Andrew. “The Tax Benefits of Forming a General Partnership.” Small Business. N.p., n.d. Web. 10 July 2014. <http://smallbusiness.chron.com/tax-benefits-forming-general-partnership-19353.html>.

5 Turiera, Teresa, and Susanna Cros. “Co-Business: 50 Examples of Business Collaboration.” Co-society.com. Co-Society, July 2013. Web. 20 Aug. 2014. <http://www.co-society.com/wp-content/uploads/CO_business_2013.pdf>.


when making decisions that carry a hefty price tag. For example, Leo Laporte,

who founded the TWiT network, describes his biggest mistake as trying to do it

all himself.6 According to LaPorte, he thought he knew everything about media

and content. But he didn’t know anything about finance, marketing, advertising

or human resources—all things needed for a viable business. When his company

stalled after a few years of stellar growth, he found himself spending more time

fighting fires than doing the stuff he loved. So, he took on a business partner

and granted her full authority to get the job done—something he says that

although it felt as if he were giving up a piece of the business, was a vital step

toward success.

Partners can also provide access to greater expertise and bigger networks, in

many cases simply by sharing employees and clients.

Marita l d iscord: Disadvantages of partnerships

With the good comes the bad; and there’s bound to be some marital discord

at one time or another. Marriage isn’t always a bed of roses, and the same can

be said about partnerships. Obviously, the first disadvantage is that you will

probably have to share profits. This can be a big adjustment, especially if you have

enjoyed the profits alone for many years. But some organizations also find that

partnerships can:

•put existing relationships at risk;

•negatively impact financial standing;

•significantly shift business ideas or operations;

•contribute to discord that jeopardizes the company;

•reduce corporate independence;

•challenge the leadership framework; and,

•make it difficult to resolve conflict7.

Partnership can at times put stress on an existing relationship. Whether the

potential partner is a family member, long-time friend, business associate, investor

or supplier, issues may arise that must be addressed before you can live happily

ever after.

But relationships aren’t the only thing that can be negatively impacted.

Partnerships can take a toll on your financial standing, too. Under some mergers,

6 Cooper, Belle Beth. “The 13 Biggest Failures From Famous Entrepreneurs And What They’ve Learned From Them.” Businessinsider.com. Business Insider, 5 Sept. 2013. Web. 20 Aug. 2014. <http://www.businessinsider.com/startup-failures-learning-2013-9>.

7 Start a Business with a Partner.” Smarta RSS. N.p., n.d. Web. 16 July 2014. <http://www.smarta.com/advice/starting-up/business-ideas/start-a-business-with-a-partner/>.


you will have to take on existing debts. Or, in the case of a general partnership,

which can be set up without any paperwork if two people agree to conduct

business for profit, you will be held responsible for any business debts8. Limited

partnerships, too, have to have at least one general partner who is liable for

debts9. Make sure you take all these factors into consideration before things

get serious.

Joining with another party can also cause business ideas or operations to shift.

You may have to give up some pet projects and move away from what you

see as your organization’s core values and objectives. How do you feel, for

example, about relinquishing a certain amount of independence and changing

the leadership framework? On top of that, you’ll need to consult with your

partner and perhaps negotiate to meet in the middle to satisfy both parties.

Flexibility and accommodation are a must when it comes to decision making in

partnerships—this can be a big adjustment for some independent thinkers.

Whether big or small, conflict is inevitable and will probably surface at some

point during the partnership, even if you and your partner seem to have found

the perfect match. You will need to determine how to resolve conflict quickly and

fairly. Ultimately, if partners fail to resolve conflicts, it can lead to a dramatic and

traumatic breakup—cue the demise of what was perhaps the greatest band of all

time, The Beatles.

Before you take the plunge consider your dat ing opt ions

So, you have looked at the advantages and disadvantages of a partnership—

what now? First, you need to decide if you really need a business partner

in the first place. And you need to know with absolute clarity the values,

mission, purpose and goals of whatever business partnership you are

considering. Only then are you ready to start considering your options to

determine what type of business partner is right for you. BizFilings® What

type of business partner is right for me is a great place to start. It will walk

you through some of your options and help you to appreciate the tax and

profit sharing implications, along with the pros and cons.

Next, you will need to consider the type of partnership best suited for your

business and situation. Here are some of the more common options to consider:

8 “Are You Personally Liable for Business Debts?” Nolo.com. NOLO, n.d. Web. 20 Aug. 2014. <http://www.nolo.com/legal-encyclopedia/personally-liable-business-bebts-business-bankruptcy.html>.

9 “Are You Personally Liable for Business Debts?” Nolo.com. NOLO, n.d. Web. 20 Aug. 2014. <http://www.nolo.com/legal-encyclopedia/personally-liable-business-bebts-business-bankruptcy.html>.


•General Partnership (GP)

•Limited Partnership (LP)

•Limited Liability Corporation (LLC)

•Limited Liability Partnership (LLP)

•Limited Liability Limited Partnership (LLLP)

•Strategic partnerships

Figure 1. outlines the basic requirements of the main partnership types.

Figure 1. Partnership summary and requirements

General Partnership (GP)

A general partnership involves merging with general partners who agree to

share in the profits and losses of the business. GPs are taxed at the individual

level, not the entity level. And each partner takes part in managing the business

and sharing responsibility for all liabilities. So, for example, if one partner is

sued, all partners are held liable and the debts are shared. For some, this makes

a general partnership an unattractive option. But there are good reasons for

considering it as well. For one, you don’t have to worry about state filing, making

it the easy choice. And start-up costs can be lower, too. There are no formation

filing fees, state fees or franchise taxes, for example. Plus, there is a lot less

red tape than with other options. You are under no obligation to hold annual

meetings with owners, issue partnership interest or keep personal assets separate

from business assets.


The split between partners under GPs is usually 50/50, but those terms are not

set in stone and can vary. Partners could, for instance, agree to work without pay

from the start until a revenue target was hit. Or one partner could agree to hand

over more money if the other brings in expertise or business contacts. The payouts

can change as the business grows—it’s this flexibility that makes GPs the preferred

choice for many.

Limited Partnership (LP)

If not a GP, then maybe an LP is right for you. Under an LP, there has to be at least

one general partner who will be liable for any business debts. The other partners

are generally not involved in the day-to-day running of the business and their

liability risk is limited. These limited partners are really investors who are most

interested in picking up their share of the profits.

This set up can leave you with more freedom to make decisions to manage the

company and keep control of your business. Partners benefit by sharing in the

profits while keeping their personal assets (homes, cars, investments, etc.) out

of the equation. This makes LPs popular for short-term projects, ventures or

special situations, such as movie production or family estate planning. Under this

structure, partners are taxed at the individual level.

Limited Liability Corporation (LLC)

Limited Liability Corporations (LLCs) are another option, combining the limited

liability of a corporation with the taxation obligations of a partnership. Unlike

corporate shareholders, the owners can participate in the management of the

company. There can be an unlimited number of owners all of which have limited

liability, making this an especially desirable option for small businesses. And

partners are taxed at the individual level.

Limited Liability Partnership (LLP)

Limited Liability Partnerships (LLPs) may fit the bill if the other options are not

desirable. LLPS set limits for everything other than personal accounts. Partners

define exactly what liabilities they are prepared to take on for errors, omissions,

negligence, incompetence or malpractice committed by partners or employees.

This helps protect personal assets from being touched to pay debts or lawsuits,

unless partners are personally liable for wrongful or negligent acts.

Doctors tend to like this option, as it limits liability for third-party lawsuits, except

for personal malpractice. So, if partner A is sued for malpractice, partner B’s


personal assets are not at risk, unless partner B supervised or directed partner A’s

actions that led to the claim. This form of partnership is restricted by state law—

only a limited number of professions including accountants, attorneys, architects,

dentists, doctors and other fields treated as professionals under state law can

organize this way.10

Beyond these three approaches, there are some other forms of partnerships

worth taking a quick run through.

Limited Liability Limited Partnership (LLLP)

A relatively new option, a Limited Liability Limited Partnership (LLLP) is made

up of general partners who manage the organization and limited partners

who simply have a financial stake. You have to be living in one these states

to qualify though: Arkansas, Arizona, Colorado, Delaware, Florida, Georgia,

Maryland, Nevada, Texas and Kentucky. With LLLP’s, partners are taxed at the

individual level.

Strategic partnerships

Sometimes organizations may come together to form a strategic partnership

to share resources or supplement aspects they do not have in-house. There are

not necessarily legal obligations with this option, so it can be a win-win for

engineers, manufacturers and product developers. It’s also popular with smaller,

entrepreneurial firms or inventors who make specialized products. The larger

partner provides cash or some other form of support, while the smaller partner

brings technical or creative expertise to the table. You can also form a strategic

partnership if you’re looking to team up for advertising, marketing, branding,

product development or other business functions.

T ime to set expectat ions

Once you have decided that a partnership is the right move and you’ve chosen

the type that works best for you and your organization, you’ll need to paint a

clear picture of your expectations for your partner and what you’re willing to

bring to the partnership. To start this process, it’s a good idea to answer a few

questions about yourself and your organization to help hone the process:

•What do I really need from a partner in the first place?

•What do I expect from a business partner?

10 “Choosing the Right Type of Business Partnership.” BizFilings. N.p., n.d. Web. 07 July 2014. <http://www.bizfilings.com/learn/form-partnership.aspx>.


•What are the partner’s expectations?

•How will I know when I find the right partner?

What do you want?

To start, you’ll need to dig deep and reaffirm that you are positive you want a

business partner. Clearly outline what you need and be specific in answering this

question so you can make sure that a partner is the right decision. Can you fulfill

these needs through additional hiring or training? If so, perhaps giving up a stake

in your organization is not necessary. Once you decide exactly what you need, you

can begin to narrow down the list of candidates.

What do you expect?

Next, you should outline exactly what you need from a partner. Perhaps you

want a partner that brings something different to the table. If you’re a creative

organization, you may desire a more detail-oriented partner that can assist

with day-to-day operations. If you have capital to invest, you might want to

find a partner with access to other markets or a solid customer base. The

objective is to find a partner that complements the skills and overall

personality of the organization.

What does a partner expect?

Equally, while you might not know exactly what your significant other expects

at first, it’s important to make sure you are both on the same page from the

get-go. Think about what a potential partner might expect in terms of time,

resource commitment and task division. Look at the partnership from the other’s

perspective to anticipate what he or she might ask for before ever going on that

first date.

Identifying the ideal partner

Finally, identify parameters, characteristics and behaviors of “The One” so you’re

in a better position to notice when Mr. or Ms. Right is standing before you.

There are some business partner checklists available online to help you work

through this process. Your Business Partner Checklist is a tool you can use to

stimulate thought-provoking conversations among partners. Or, The 12 Step

Checklist For A Successful Business Partnership can help you identify key partner

attributes and contributing factors to a successful partnership.


If after all of this, you are not confident in finding your own partner, there are

some “dating services” you may want to turn to. Many of these broker services

are similar to the likes of eHarmony™ but for entrepreneurs. Alliance Experts

provides you with a quick overview of potential strategic partners at home or

abroad. Simply fill out your profile outlining what you have to offer and what

you are seeking. Or if you’re up for some speed dating, you could try a company

like Onevest, which brings together a vibrant community of entrepreneurs

and investors looking to build, fund and launch successful startups. Think

crowdsourcing for a business partner. Go it alone or use a service—there are

many ways to get a date.

Before you propose: What you need to know about potent ia l partners

Once you’ve dated for a while and you think you’ve found the perfect match,

you may be ready to pop the question. Before you take that final leap, step back

and make sure you know everything you need to know about your partner. You

will need to have a deep understanding of your potential partner’s operations,

performance and economic standing. After all, you don’t want to partner with

someone who is unstable or has a questionable past—these are things that can

doom your partnership both now and in the future.

Be sure to ask:

•What is your potential partner’s financial situation?

•Is your potential partner’s commitment to the business as strong as yours?

•How would a partner handle a tough situation?

•What is the potential partner’s standing in the community?

•Is your partner willing to put everything in writing?

If you want to explore these questions in detail, check out the online article

10 Questions to Ask Before Committing to a Business Partner. Author Lisa

Girard notes that “… a business partnership often begins with enthusiasm

and high expectations—only to end in acrimony and legal proceedings. It’s

important to know as much as possible about a potential partner, including

how his or her finances and family life may affect the business, before signing

on the dotted line.”11

11 Girard, Lisa. “10 Questions to Ask Before Committing to a Business Partner.” Entrepreneur. N.p., 26 July 2013. Web. 16 July 2014. <http://www.entrepreneur.com/article/227576>.


Know what to avoid

Keep in mind that not all companies are the marrying type. Just as you need

to know what to look for in a partner, you also need to think about what

partnerships to avoid. These include:12

1. Mr. Employee: A first-time entrepreneur who enjoys a regular

paycheck and being home for dinner.

2. Ms. Perfectionist: Someone who always wants one more

comprehensive survey.

3. Mr. College Buddy: He had a great idea in a bar, needs your help,

but is unable to commit to the project.

4. Ms. Inventor: A brilliant academic who wants to commit everything

into research and development but doesn’t understand the need

for profitability.

5. Mr. Right: A “my way or the highway” guy who makes decisions

without telling anyone.

6. Ms. Dreamer: She dreams of a big payday but has no idea how to

keep a business in the black.

7. Mr. Spender: Someone who needs a big salary and doesn’t care

about getting the most from every dollar for the business.

8. Ms. CEO: Someone more interested in her title and its trappings than

in real work.

9. Mr. Vacation: Someone who never seems to be around.

10. Ms. Personal Issues: Someone who always has a sad story and seems to

need a babysitter or psychiatrist.

If you want to read more about these guys and gals, have a look at The 10 Worst

Partners from Entrepreneur®. You’ve weeded out the bad seeds. Now it’s time to

put in in writing.

You need a prenupt ia l : Put a partnership agreement in place

You have decided to commit and you’re ready to walk down the aisle. There is still

a tricky conversation to be had: the prenup. Unfortunately, without a prenuptial

agreement, you can end up paying a pretty penny if your marriage doesn’t work

out. And in business partnerships, you’ll want a legally binding document to

protect your organization from being taken to the cleaners if things go south.

Enter the partnership agreement.

12 Gerber, Scott. “The 10 Worst Partners For Your Start-Up.” Entrepreneur.com. Entrepreneur Media, Inc., 29 June 2014. Web. 6 Aug. 2014. <http://www.entrepreneur.com/article/202434>


Having a solid partnership agreement in place can make things a lot easier in the

event things don’t work out, and it’s pretty much a red flag if a potential partner

doesn’t want one. A clear partnership agreement should be drafted by attorneys

and signed by all parties involved. At a minimum, it should address:

•percentage of ownership,

•allocation of profits and losses,

•binding the partnership,

•the death of a partner,

•how to make decisions, and

•resolving disputes.

Sharing ownership

As you draft a partnership agreement, take a hard look at the percentage of

ownership. You’ll need to record how much each partner is contributing to the

partnership both in terms of cash and sweat equity. The exact percentages of

ownership should also be outlined here. For instance, a partner who works the

business full-time may get a larger percentage or vice versa—there’s a lot of ways

to determine this number, but it needs to be included in the agreement upfront.

Sharing the rewards

An agreement must also look at how profits and losses will be allocated. Will

they be shared in proportion to a partner’s ownership interest, or will partners

be permitted to allocate profits from the business prior to the actual distribution

among all partners? This practice is commonly known as a draw.

What is binding?

Formal partnership agreements should also outline what is binding in the

partnership. For example, make sure you know what would happen if one partner

purchased expensive machinery without explicit permission and approval from

another partner? Would the partnership be on the hook for the cost? And do

partners have the right to make decisions that could upset the financial stability

of the business?

What happens in a death or separation?

No one wants to think about the worst-case scenario, especially at the start

of a joyous, hopeful union. However, it’s important your agreement addresses

what will happen to the company in the event of death, separation or financial


bankruptcy. For example, what if one partner experiences an untimely death or

simply wants to leave the partnership? Oftentimes these situations are addressed

with a buy/sell clause.

Making decisions and handling disputes

Last, but certainly not least, partnerships should agree beforehand how decisions

will be made and disputes will be resolved if you can’t agree on a course of

action. Avoid a stalemate by outlining a decision-making process in the initial

agreement to ensure business operations progress smoothly. A well thought-out

process for resolving disputes is far less costly than going to court and far less

risky than relying on the mercy of the judicial system. You also may want to

include a mediation clause for resolving major conflicts. For a simple checklist

to help you prepare your partnership agreement, check out this Partnership

Agreement Checklist.

A love story: Ben & Jerry’s® Ice Cream

True love, soul mates and happily ever afters really do exist. The story of one of

America’s most famous ice cream brands, Ben & Jerry’s, highlights just what can

be achieved with the right business partner.

In 1963, Ben Cohen met Jerry Greenfield in seventh grade gym class. They

became quick friends, and 14 years later decided to take an ice cream-making

class. The rest is pretty much history. That same year, they opened their first Ben

& Jerry’s Homemade® shop in a renovated gas station. By 1983, Ben & Jerry’s was

a franchise and flavors like Cherry Garcia® and Chunky Monkey® became staples

in homes across America. A year later, the company reported sales topping $4

million. In 2000, the pair sold the company to Unilever® for $326 million.13

What made this partnership so successful? While it’s true they were essentially

lifelong friends, as business partners they relied on complementary skills to

find success. Each brought a different skill set to the partnership—Ben was the

creative one while Jerry ran more of the daily business functions.14 If you ask them

about what made the partnership successful, they say it’s a combination of trust,

complementary skill sets and shared business values.

Like any partnership, the company had its share of bumps, literally. Some of the

biggest disagreements related to the size of chunks in certain flavors of ice cream.

13 Perman, Stacy. “Famous Business Partnerships.” Businessweek.com. N.p., n.d. Web. 17 July 2014. <http://images.businessweek.com/ss/08/11/1121_famous_partnerships/10.htm>.

14 “Ben & Jerry’s Recipe For Success.” Motivated Online RSS. N.p., 18 Mar. 2012. Web. 17 July 2014. <http://motivatedonline.com/ben-jerrys-recipe-for-success/>.


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But, they persevered with Jerry saying they were aided by shared core values. He

told Motivated Magazine: “I think that getting people into the company who

had some business expertise but who were also entrepreneurial—who shared the

values of the company—was critical. I think the part about sharing values was

really the most critical piece.”15

The key to a successful partnership

Just like marriage, there’s not just one thing that guarantees success in

a business partnership. Some things come easily while others remain a

challenge. But once you’ve decided to enter a partnership following these

guidelines can help you achieve your happily ever after. Just be ready for

the ins and outs, and the ups and downs—like any marriage, really.

15 “Ben & Jerry’s Recipe For Success.” Motivated Online RSS. N.p., 18 Mar. 2012. Web. 17 July 2014. <http://motivatedonline.com/ben-jerrys-recipe-for-success/>.

Business Partners Blue Paper

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