If you ask a business attorney about the pitfalls and best practices of partnership, buckle up and clear your afternoon schedule because you're about to get an earful. You'll probably hear about different structures, clawback provisions, classes of stock, buy-sell agreements, dispute resolution, gridlock and bylaws.
In other words, it's going to be long, it's going to be technical and it's going to be boring.
My advice is to forget about all of that... at least for now. When you first start getting serious about going into business with someone, what you really have to do is answer these four questions:
How do you define success? Why are you bringing them into the business? Is it to dramatically increase revenue, for their back office expertise or perhaps to enable your company to expand into other areas? You have to be able to articulate what would make you look back in any given timeframe and declare the new partnership to be a success.
What can be done over each partner's objection? Every organization faces critical decisions each and every day. Your job is to figure out who can make those decisions. Is unanimity required just to buy pencils? How about to enter into a new lease or accept a six figure contract? Can a partner be fired? Once you have a complete answer to this question, you'll know everything you need to know about what attorney's call "governance."
Where does the money go? Who puts the money in? What happens if the company needs more cash or spends more than expected? How is the profit distributed? What are the salaries? Unless the partners have what can only be called an adult conversation about money such that the expectations of each partner are aligned with those of each other partner, the partnership, itself, is fatally flawed and destined to fail.
How will you get out? Lawyers call this an exit strategy. Every business initiative should have one. A successful partnership can be immensely rewarding both financially and emotionally. But regardless of how successful a partnership is, it will end. Perhaps that end will come many years from now when a partner dies or decides to retire. Often, the end comes sooner when disagreements on direction arise. A defined process to which each partner agreed before the discord is key to preserving both the investment and the relationships developed by each partner over the years.
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Partnerships come in all shapes and sizes. Some are governed by extremely complicated documents, while others can be reduced to writing in little more than a page or two. Whatever the case, those terms and all of what tends to become legalese, is intended to answer the question: How is it going to happen? Lean on the lawyers to guide you through that one.
Your job, and by far the most important when contemplating a partnership, is to answer "What do I want to happen?"
Everything follows from there.