The Complex World of Business Partnerships

Are you considering owning a business with a partner? It’s a great opportunity to hone your leadership skills, especially if you’re making the transition from employment to self-employment. But, you may want to think twice: partnerships can be tricky business.

When they work well, they are wonderful. One can consider the monster success of Apple (Steve Jobs and Steve Wozniak) or Microsoft (Bill Gates and Paul Allen). However, in reality, business partnerships are fickle.

First, a partnership must survive as a small business. According to an Industry Canada Report, 30 percent of small businesses fail within two years and half fail within five years.

Secondly, a partnership must survive the partners’ relationship to one another. Now, before I go any further, I am using the term partnership very loosely. Legally speaking, a partnership is a different legal entity than a corporation. For example, in Manitoba it is regulated by the Partnership Act, which states that a partnership is: “the relation which subsists between persons carrying on a business in common, with a view of profit.”

When I read about successful partnerships, a familiar theme develops. Really successful partners have skills that complement one another. One will be a technical wizard, while the other will have business foresight – think Apple or Microsoft.

However, we all know that individuals with different skill sets see the world differently and may disagree on a path forward. When disagreements pile up and egos get bruised, a partnership can take a turn for the worse.

In my practice, I have seen many partnerships fail. When they fail, they fail spectacularly. Feelings are hurt. Having represented parties in failed business partnerships, and spouses in separations, I can assure you that the emotional atmospheres are almost identical. Failed partnerships evoke the same feelings as failed marriages (or common-law relationships).

For repairing damaged relationships, partners must resort to the same tools available to couples who experience difficulties; but unfortunately, the law does not offer any tools to assist partners in overcoming their differences.

In reality, the law can only provide a means to wind down a bad relationship. Just as co-habitation agreements and marriage contracts (or prenuptial agreements) provide a road map for couples who need to separate, partnership or shareholder agreements put in place at the start of the business relationship can set the stage for an eventual break-up.

When partner relationships deteriorate, the business suffers. Partners or co-founders cannot agree, so no new decisions are made. In the case of corporations, funds may be stuck in the business, with no means of getting the equity out to the share owners. Capital expenditures are frozen. New business is not developed. I have seen businesses suffer and value evaporate. It doesn’t take long.

I always tell my clients that partnership and shareholder agreements are like insurance policies. Hopefully, the agreement will sit in the bottom of a drawer never to see the light of day, as the parties roar into the sunset enjoying the fruits of a wildly successful business. But, should the relationship sour, or something unforeseen occur (like the death of partner), the parties will have a road map to move forward. Not everyone will be happy, but at least the value of the business may be preserved.

Philippe Richer is President of TLR Law Group. TLR has been located in the St. Boniface neighbourhood, in Winnipeg, since 1996. The office serves the middle class and small business within the province. With a focus on estates, wills, real estate and corporate law, he leads his team in providing accessible legal services. Philippe also authored the Business Law and Contracts course for the Knowledge Bureau and instructed the français juridique class at the Faculty of Law at the University of Manitoba.

Additional educational resources:

1. Join Knowledge Bureau in discussing tough issues, like these, that affect Canadian business leaders, on the LinkedIn Executive Business Builder Network. Also, register today and join fellow business leaders from various industries at the Business Builder Retreat that we are pleased to unveil for the first time at the Distinguished Advisor Conference in November.
2. Enroll online and study at your convenience. A free trial of Business Law from the Executive Business Builder Program is available. Or, complete the full designation.
3. Are you a small-business owner ready to brush up your skills to better address operational needs? Register for our Insurance Strategies for the Small Business Owner or Tax Accounting for Proprietorships certificate courses.

COPYRIGHT OWNED BY KNOWLEDGE BUREAU INC. 2018.
UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.

Refer a Friend	Research	Calculators	Course Trials