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Top benefits (and downsides) of business partnerships with friends

Q: I have an opportunity to start a business with an old friend. I am wondering what I need to think about when it comes to this new partnership. Thank you. -- Melissa

A: There are significant pros and cons to business partnerships but how to weigh these factors is an entirely personal matter. Does having someone to work and share bills with outweigh someone telling you how to run the business? Only you can decide

When a partnership works, the results can be great-synergistic even. But when they do not work out, partnerships can be disastrous: My father went into business with his best friend and they were very successful. After it ended 16 years later, however, they never spoke again.

Like a marriage, a business partnership is both a legal and an emotional commitment. So to make sure yours will succeed, carefully consider both aspects.

Partnerships and the law

Like a marriage, one partner can accrue debt and both partners become responsible for it. Your business partner, for example, can decide to take out an expensive ad in a national magazine, and the whole partnership is responsible for paying for that ad, even if it was a dud. Essentially, each partner is responsible for his or her own actions, the actions of the other partners, and the actions of any employee.

More significantly, each partner has a fiduciary duty, which is to act for someone else's benefit, even while subordinating your own. If you run a restaurant with a partner and a great deal comes your way to open another restaurant without your partner, your fiduciary duty means that you either have to forgo the opportunity or share it with your partner.

Because there are so many moving parts to a partnership, it is vital that you put your agreement in writing. Think of a partnership agreement as a prenup for your new business. It covers the worst case scenario and dictates what will happen should the worst come to pass. Because of its importance, you need the assistance of a lawyer; this is one time where doing it yourself is not a good idea.

Your partnership agreement should include the following:

• Identification of who invested how much, how partnership shares are to be divided and how profits are to be distributed
• The rights and responsibilities of each partner
• Transfer of partnership interests and valuation of partnership shares
• How a dissolution with a partner should happen
• Causes of dissolution, and distribution of assets upon dissolution
• Salaries

Of course there are more rules that go into starting a business, and you can learn what they are at the Microsoft Startup Center.

Partnerships and personalities

The upside: A partner can offer skills you do not have, money or connections. There is someone to share workload, financial burden and creative ideas.

But here are a few downsides: If you don't get along, you may disagree about minor and major issues. I had lunch with a pal recently who had to buy out his partner after only two years because they disagreed about, well, basically everything. Your new business is supposed to be fun and you don't want to risk that by choosing to work closely with someone who bugs you.

That's why it's a good idea to have a trial period for any new partnership before jumping headlong into it. Do a project or two together and see if your styles mesh. If so, congratulations. If not, it's a hard lesson avoided.