What can I do in before starting a partnership to increase by odds of
not having a nasty split later.

I am told by some experienced CEO friends that partnerships rarely
last.  They tell me that usually after 2-4 years, one or both of the
partners changes and they no longer get along and the company splits
and there is usually lawyers and bad feelings involved.

Seems like the same as in marriages.

What are some best practices that partners are doing out in the
business world today to lesson the chances of a split or to make it so
I there is a split, it is an easy one and not much lawyer fees have to
be spent and everyone leaves on good terms.

I am told one way to help the situation is to first create a
shareholders agreement before forming the company/partnership.

. I have 2 weeks till I need to act on this and form the
company/partnership with a minority partners.

Here is the info I am looking for:
- Can someone send me some info on other ways that help meet the goals I mentioned?
- Is there any example shareholders agreements out there what do what
I am looking for and that give me ideas what to put in mine?
 - Since I will have 45 to 49% ownership, but this doesn?t nessarilly
mean that I can effectively retain control in the event of a breakup.
Is there anything I can do to make sure I can still keep control and
run the company in the event that my relationship with this future
partner sours? Anything that doesn?t impact the fairness of the
partnership?

This is for a small business that has good growth potential.

thanx in advnce

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Request for Question Clarification by cynthia-ga on 11 Jan 2005 11:29 PST

sherpaj,

Your Attorney friend is SO RIGHT.  Partnerships fail more often than
any other type of business entity, period.

Retain control after a dispute, with only 45-49%?  Your partner would
have to die, or retire.

I can find all sorts of advice for you, and you can take what fits,
and throw out the rest..  Here's an example:

Creating a Partnership Agreement
http://biz.findlaw.com/business_organizations/choosing/nolo/ency/8380AD8C-866C-4B9B-8DC1AA0B46CE2CF4.html
..."If you and your partners don't spell out your rights and
responsibilities in a written partnership agreement, you'll be
ill-equipped to settle conflicts when they arise, and minor
misunderstandings may erupt into full-blown disputes. In addition,
without a written agreement saying otherwise, your state's law will
control many aspects of your business..."

There's some excellent advice at this link, including this, which I
want to bring to your attention:

..."The Uniform Partnership Act 
Each state (with the exception of Louisiana) has its own laws
governing partnerships, contained in what's usually called "The
Uniform Partnership Act" or "The Revised Uniform Partnership Act" --
or, sometimes, the "UPA" or the "Revised UPA." These statutes
establish the basic legal rules that apply to partnerships and will
control many aspects of your partnership's life unless you set out
different rules in a written partnership agreement.
Don't be tempted to leave the terms of your partnership up to these
state laws. Because they were designed as one-size-fits-all fallback
rules, they may not be helpful in your particular situation. It's much
better to put your agreement into a document that specifically sets
out the points you and your partners have agreed on..."


If you would like your Answer to be something along these lines, let
me know and I'll get right on it.  The facts are though, that the
majority share has the final say.  If you are being offeded a
Partnership, ask yourself, "what does s/he WANT from me?"  If you are
employed by this person, ask yourself... "what does s/he WANT from me
that I am not already giving?"

What are you going to get that you are not getting now?  My guess is
more hours for the same, --or less pay.

Silver is correct, there is no formula, or master checklist,
partnerships are as varied as the businesses and people involved.  No
two are alike.  The clauses that can be added to Partnership
Agreements are in the hundreds, if not over a thousand.


It would be helpful to know the City, County, and State where the
business is located.  What is the business, is it a service or a
product?  How long have you known this person, what is your
relationship?  What would your position be?

We need more info.

~~Cynthia

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Request for Question Clarification by cynthia-ga on 11 Jan 2005 11:31 PST

And how much will you own?  On this page you have said two different things:

..."Since I will have 45 to 49% ownership, but this doesn?t nessarilly
mean that I can effectively retain control in the event of a breakup..."

..."I would be the one with the 51%+ share, and no i cannot do it alone..."

Hi Shepaj,

Just thoughts from experience and observation in the hope that it
might help, if only to reinforce most of what you have touched on. I
wish I could give you a magic formula, but the point is there is no
formula. The reason for this is that each individual entering a
partnership is unique unto themselves.

Liken an individual to an element. Combining two elements may or may
not form a compound. Some elements compliment one another and
reciprocate like hydrogen and oxygen to form water. Other combinations
repel, implode or explode because they simply do not exist naturally.
You are entirely correct. A partnership is like a marriage. It's a
relationship based on trust, input, teamwork and goal direction. The
sad experiences simply come from misunderstanding one another's
perceptions of the very same thing. Forcing unnatural elements
together will result in the obvious. So, make your concerns known from
the start.

Have an "out" clause before either of you enter the doorway. That is,
if either decides to quit, how you will approach that which remains.
Does the remaining party have first option to buy out the quitter?
What value do you place on one another's interest in the company?

Without knowing the nature of your verbal agreement I have one
concern. Why 45-49%? 51% does hand control to the other party. That
tells me one of three things. You have been invited to take 49% for
either your intellectual property input or your dollar input. OR you
have agreed to hand over control of your own idea to someone with
dollars. OR ditto .. but there is a third partner in waiting, using
4-10% equity to back-up the other party after you have left the
partnership.

You are prudent to be putting this in place. However, the fact that
you have posted the question here makes me think you have concerns
already.

Can you do it alone?

Phil

If you have 45% to 49% then you are stuffed

- but then I reckon you are stuffed anyway

Also be wary - you can create a Partnership almost by accident under
English law, and I doubt that it is that different in the USA

Think again - any form of minority 'control' is dangerous

silver777-ga thanks for your comments. I like the part about "Have an
"out" clause before either of you enter the doorway".  It is more of
these type ideas that i am looking for.  Could there by some stuff out
there on the web with more ideas and maybe sample shareholders
agreements, etc?

I would be the one with the 51%+ share, and no i cannot do it alone.
thanks!

Hi Sherpaj,

Cynthia beat me to it in reference to your 51% contradiction. Unless
you meant that things have changed since you first posted your
question.

I think I understand where you are coming from though. Because we
often don't even know which questions to ask, we might try to find a
product that best fits. The simplest idea I can think of is to start a
$2 shell company and then add your own clauses under the guidance of
your joint company solicitor. You may then want separate
solicitors/lawyers to handle your individual affairs. Without them,
I'm sure you will find that your company solicitor can not act for
both of you if a conflict arises. Depending on your country's laws, a
family trust or unit trust is something else you might like to
investigate with guidance.

From what you have described, I gather that you will be a Director of
the company. That is different to a simple partnership.

Talk to your other intending Director together with your accountant and lawyer.
Ask them too what impact a 50/50 split will have compared to 49/51.
The reaction of the other party might answer some questions for you.
Also, don't ignore your gut feelings.

Good luck with your venture.

Phil

- Is there any example shareholders agreements out there what do what
I am looking for and that give me ideas what to put in mine?

- Are there any case studies out there os partnerships that laster
more then 5 years?  What did these people do that helped them beat the
odds of a breakup and nasty split.  Or if they did split, what did
they do so that the company went on and they remained friends?