03/17/2011 04:33 pm ET Updated May 25, 2011

Critical Questions to Ask Before You Become a Partner

Here's the scenario: You are interested in (or been asked to) become a single or group partner in a product or business.

Dilemma: How do you cover all of the bases before you say "yes" (or "no")?

I recently provided some guidance for a client who is going through this exact issue. Her potential group consists of six women who want to optimize all of their levels of expertise and available time to create a product together. A couple of women are entrepreneurs who don't have a lot of time to contribute to the project. A few others are stay-at-home moms; they don't really have the business experience but they have more flexible time when their children are at school.

Here are the key issues you should discuss upfront:
  1. Responsibility assignment. Who is going to do what to get things done.
  2. Investment allocation. Will each partner be bringing in a certain amount of money to get things started? Will there be sweat-equity partners who don't provide upfront money?
  3. Media coverage. Who is going to go on TV? Who's going to do the interviews (radio, print, etc.)?
  4. Expanded product line. Who owns the additional products? Who is going to do the work?
  5. Expense distribution. Who will cover expenses and how does that get divided? If one person is doing the majority of the work, should she pay less in expenses.
  6. Marketing efforts. When the product is actually out in the world and it's shipping, who is doing all the work to market?
  7. Revenue distribution. Does everybody get an equal share and is everyone happy with that? Is that fair, is that the way it should be?
  8. Exit strategy. What if someone wants to get bought out? What happens if an offer comes in to buy your products/company outright? How do you plan to dissolve the company or partnership and does the dissolution need to be mutually agreed upon or just a majority?
  9. Survivorship. What happens if one of the partners dies? Are the profits split between remaining partners or do they go to the family?

So when you're doing group projects and this isn't that common but I tend to hear from my clients sometimes when they get involved how dissatisfied they are because these things weren't discussed and agreed upon before they began. So they start to realize, "Wait a minute, I'm doing all the work, why is she getting half the money?" That kind of attitude starts to come out.

Whenever there's a partnership involved in either doing a book, product or delivering a service, it's really valuable to invest the time to do the pre-planning first so that all bases are covered before you end up in a sticky situation or legal battles.