Partnerships. Yes or No

[Ian Shorrocks]

Hi all. I'm fairly new to this Forum, and am on a bit of a learning curve.

I am in the process of forming an export company, with an in-law.

I have been running my own business in the construction industry for the past 20 years, on a small scale I might add, and have never had a partner, just sub contract trades and self employed workers. Partly because of the size of the business, partly because I'm used to being the boss, but mainly, on advice from friends and associates who have been in that position and been left high and dry, and in one case bankrupt and totally skint.

However, in this new venture of mine, after some careful consideration, the"In-Law" was approached to assist in this venture, due to there closeness to my wife (i.e. her Father), but more importantly his local knowledge, experience and contacts(albeit dated), and language.

Although we have discussed, many aspects of the enterprise, we haven't really discussed, partnership in a legal sense, or percentage share etc.

So if possible I would like your views on the following:-
1. Partnerships in general.
2. Partnership within family(i was going to say friends as well, but i can probably guess what the majority would say)
3. Legalising the partnership.
4. Advice on profit share and re-investmnet.

Regards

Ian

 

[Scalloway]

Personally I would go for a limited company. That way you only lose what you have in the company.

An insolvency practitioner once told me you should take more care in taking on a business partner than you would a wife. I would strongly recommend getting a lawyer to draw up a partnership agreement.

 

[Billmccallum]

My advice is always keep 51% of a business, with the controlling stake you don't get into impasse positions.

 

[Johnny.S]

I'd consider it very carefully before going into partnership with your in-law. You have already received good advice about the business structure. But you should also make sure that you have the same vision for the business. Business partnerships can be extremely problematic unless you are both reading off exactly the same page. You may also want to consider the implications for your family life if the business partnership starts to cause tensions.

 

[find-accountants.com]

Strictly speaking on business basis, there are potential tax/ operational/ legal benefits available to both partnerships and companies. However deciding the best route for your business in your case is likely to depend on your business and personal relationships – in particular how well you know the other business partner, his investment needs and goals. As a matter of course, I advise all my clients to go Ltd route (whenever possible). Partnerships, esp with in-laws tend to be complicated (esp if husband-wife relationship goes wrong) unless the partnership is properly documented and legal rights/obligations are defined.But i cant seem to see any reason why you cant go for the LTD route.

 

[Talay]

My advice is always keep 51% of a business, with the controlling stake you don't get into impasse positions.

Retaining only 51% leaves no room for future dilution and still retaining control.

Why not employ him as a consultant ?

 

[tonitarzan]

dont do business with family, its a big NO NO NO

 

[MikeH]

Do not dismiss the opportunity because its with family. Consider all of the positives too. But do get partnership or shareholder agreements. You need to consider investments, exit strategies, dispute resolution etc. If you go LTD consider one share class to divide ownership of the company and a second or third class to distribute profit.

Speak to an accountant regarding LTD, LLP etc.

 

[The Byre]

If I am called into a company that is in difficulties, despite having reasonable TO and good products/services, it is nearly always a partnership.

If you feel that you MUST work with this person (for whatever reason!) form TWO companies and work together. That way, if someone is not doing what they should, you can walk away unscathed and keep your business going.

 

[RapidFormations]

As others have pointed out, there are obviously big risks with going into partnership - with a family member especially. It's important to have a full and frank discussion about the direction and aims of the business. As long as you're on the same page it may work out (it must work sometimes!) but be sure to put in place a thorough Partnership Agreement to minimse any future disputes getting out of hand.

 

[Remys]

For sure keep most of the business to your self. I would never go 50/50 with someone if it's myself who started it. As for family as a partner, it can be hard. No one wants to just hire a family member because they have been suggested to. I have dealt with this myself, where family have asked me to give so-and-so a job and I always am uncertain about doing it.

That being said, I think it's great to have a partner to share the workload with. If it's just in the beginning stages, I think it's best to have some form of help.

 

[MIKE-1]

Partnerships with family members have extra risks because, if problems occur, it might not just be the partnership that breaks down. If you decide to go ahead get a solicitor to draw up an official agreement, this should set out what happens when things go wrong. There's more information here on PARTNERSHIPS

 

[MikePNV]

HI

First of all what kind of relationship do you have with him? do you get along well?

 

[Ian Shorrocks]

I'd consider it very carefully before going into partnership with your in-law. You have already received good advice about the business structure. But you should also make sure that you have the same vision for the business. Business partnerships can be extremely problematic unless you are both reading off exactly the same page. You may also want to consider the implications for your family life if the business partnership starts to cause tensions.

Thanks Johnny, these points had crossed my mind, hence, as has been suggested forming a Ltd company, and having a proper contract written up.

 

[Ian Shorrocks]

Thanks for all the good points brought up, I appreciate the potential problems that could arise from going in to business with my Father in Law (namely my wife) However I feel he is less likely to "shaft" me, by doing so would be detrimental to his daughter. The main reason for bringing him in is as I said, his local knowledge and contacts. I'm sure any of you who know anything about doing business on the African continent, one of the hardest things is to get your foot in the door without being fleeced.
As was mentioned earlier, keeping control of the company I feel is important, as I will probably be doing most of the work at this end, but his help is invaluable.
I think as we progress I will have to seek legal advice.

 

[beasty]

HI

First of all what kind of relationship do you have with him? do you get along well?

That is actually irrelevant as you have no clue what your relationship might be like in 10 years, you should set up on the basis that you WILL FALL OUT and if it does not happen then good.

Plan for the worst not the best!