Connect with us

Partnerships

Bringing On a Partner?

Don’t get carried away by the idea of owning your own business and forget to put a few agreements in place first.

Ann Logue

Published

on

163

In both business and romance, the early stages are filled with starry eyes and optimism. Nothing can possibly go wrong – but if it does, the partners will face it together. In real life, however, things are rarely that neat.

One fundamental error made by many start-ups is failing to have essential business documents and agreements in place from the beginning. Partners often hold off on putting key terms in writing because in the early stages, when everyone is enthusiastic and in sync, they can be loath to interfere with the thrill of getting a new business off the ground.

But having basic partnership or incorporation papers that outline each party’s roles and obligations, as well as other agreements more specific to the type of business, is key to preventing problems down the road.

In fact, companies that use lawyers and have documentation in place are more likely to succeed than those that don’t. Wherever there’s ambiguity, there’s conflict.

In addition to specifying founders’ roles, partnership and incorporation documents lay out a plan for what will happen if there are changes among company principals, or if the business shuts down altogether. People can quit, relocate or die, so a buyout clause is a necessity.

Companies that fail can leave behind assets that will need to be sold or distributed among the owners. Talking about these transitions beforehand will save time, money and hurt feelings later.

Agreements should be negotiated as early as possible – ideally before opening the doors, but certainly before the business accumulates value or takes on debt. Once the business starts gaining value, things start getting touchier – it’s better to do it in the beginning when people are on equal footing.

Clear incorporation documents prevent unpleasant surprises, such as a smaller-than-expected share of sale proceeds, which can lead to legal disputes that cost money, ruin reputations and destroy friendships.

The partnership or incorporation agreements are also closely related to the financing of the business, so they should be drawn up before seeking outside capital. If one founder is providing a significant amount of the capital, it’s particularly important to have a lawyer review the paperwork.

Company founders who go into a financing negotiation without having their own agreements in place beforehand will be particularly vulnerable to a financing arrangement that strips them of control or limits their upside if the firm is sold.

A legal matter

Start-ups often stall on legal agreements because the founders prefer to put their limited resources into sales, marketing and product development.

Many lawyers who work with entrepreneurs are willing to negotiate payment agreements, such as deferring some billing until financing arrives. Standard business organisation, nondisclosure and other agreements can be used to get a conversation started and to prepare for a meeting with an attorney, reducing billable hours.

Entrepreneurs often want to do it all themselves, but that can be a recipe for disaster. Legal work is one task that’s easy to outsource and important enough to the success of the business and its relationships to justify the time and expense. It’s also a good first exercise in delegation. Don’t be the CEO, COO, CTO and lawyer at the same time.

Here’s the deal

Legally, when two or more people start a business, they are considered to have a general partnership and share equally in the assets, liabilities and profits – unless they sign an agreement that states otherwise.

In addition, you may consider drafting other agreements, such as: a non-compete agreement, which restricts the ability of a founder or key employee to leave the company to work for a competitor; a non-disclosure agreement, which may help protect intellectual property; power of attorney, which can give the other partners the ability to handle business decisions in case one partner is incapacitated; and an arbitration agreement, in which the parties agree to send any disputes to an arbitration panel instead of resorting to litigation.

Ann Logue is a freelance writer and consulting analyst who is fascinated by business and technology. She is the author of Emerging Markets for Dummies (Wiley 2010), Socially Responsible Investing for Dummies (Wiley 2009), Day Trading for Dummies (Wiley 2007), and Hedge Funds for Dummies (Wiley 2006), and has written for Barron’s, Newsweek Japan, and Entrepreneur, among other publications.

Advertisement
Comments

Company Posts

The Foundations Of Growth

How Jurie Venter has focused on working with the right partners and doing thorough market research to achieve business success.

Introstat

Published

on

umafrika-gaming-technology

Vital stats

  • Player: Jurie Venter
  • Company: umAfrika Gaming Technology
  • Est: 2014
  • About: umAfrika is the provider of Gaming Products and Services to South Africa and all other countries in Sub-Sahara Africa and the Indian Ocean Islands.

Three years ago, umAfrika Gaming Technology co-founder, Jurie Venter split from an international company to start a more locally focused business. umAfrika bought a going concern in the South African gaming market. It was a great opportunity with one big catch: They had to launch with an ageing international infrastructure.

Look for opportunities

Although leaving a large international brand and all the support it offers can be daunting, Jurie understood his goals, and how he aimed to get there.

“Although there was a shift from an international focus to a local one, the foundation of the business stayed the same, with the added benefit that we now had local shareholders and could service local businesses.”

Related: Listen And Learn: Why Podcasts Aren’t Just For Start-up Founders

Jurie knew he could build a strong business because he had done thorough research into the South African market. The international market was similar enough to South Africa to prove the concept, and research revealed the local market was large enough to offer a great opportunity.

The Lesson: Make sure there is a need for your offering. By international standards, South Africa is a relatively small market. Jurie and his team needed to ensure there was a large enough local market before they invested in support, staff or infrastructure.

Partner for success

“It’s very important to work with the right partners,” says Jurie. “Focus on developing long-term relationships wherever you can. You want a partner that is reliable and has the right tools to help and enhance your business. I want to know that whenever I pick up the phone to a supplier, there is always someone on the other side who can help me.”

What’s the secret to building such great partnerships?

“Be honest and open in your business and partner with companies that are honest and open with you,” says Jurie.

“For example, we have an excellent partnership with Introstat, which had been building momentum for a few years — long before we created our own independent business. What’s been phenomenal is how we’ve grown together. When they first came onto our radar they only supplied printers. Over the years Introstat has grown into the areas that we needed to grow and enhance our business. We’ve been able to walk this path together.”

The Lesson: As a start-up or SME, you will often work with service providers who are also on a growth path. Work together — with the right relationship and support, you’ll actually grow together. This can work in a number of ways. Your support allows your suppliers to grow and extend their product and service offerings, which then helps you to expand, or in other cases, clients expand overseas and can take you with them. Partner with a business that you can develop a close relationship with, someone who is reliable and has your best interest at heart. The best way to do this is to ensure your values are aligned. Relationships and support are the foundations of business. Build these with your suppliers and your clients — look at business holistically.

Related: The 10 Best New-Age Business Ideas You Haven’t Heard About Yet

What Introstat can do for you:

  • Years of ICT sector experience brought forward to help you grow your business
  • As an HP Platinum Partner Introstat has access to the full range of HP products from Hardware, Software, Networking  to HP Financing and leasing options
  • Through its consulting expertise, Introstat determines the finest solution for your business
  • Introstat has a team of qualified engineers  that can service and maintain your printer fleet and ICT environment nationwide
  • Offers both onsite and remote technical support
  • Provides services within IT Security, Managed Print, Networking, Server/Storage, Cloud, Hosting, VOIP and IoT Connectivity
  • Introstat is a Premium supplier of PCs, laptops, printers, ink and toner with a national distribution infrastructure
  • A BBBEE level 1 company.

Let Introstat show you the new HP A3 Multifunctional range, the most secure printing devices in the world.

Continue Reading

Partnerships

What To Do When Partnerships Go Bad… Very Bad

What do you when the honeymoon is over and you discover that you’ve gone into business with a snake?

Alan Knott-Craig

Published

on

business-partnership-issues_partnerships_starting-a-business

Q: My business partner is trying to screw me out of my business. I approached him a month ago to say I wanted to chase a different path, and sell my minority stake. It’s worth R1 million, but the shareholder agreement says that if I resign he has a call option to buy the shares for nil. His response to my request to exit was that he would exercise his option and pay me nil. What should I do? Should I stay? Should I walk away from the shares with no money? Should I fight for what he owes me? I’m not happy in the company, but I can’t bring myself to write-off the value of my shareholding. — Anonymous

Know who you’re partnering with

I have bad news for you. You’ve lost your money. Kaput. Gone. Minority shareholdings in unlisted companies are worthless, unless you’re in bed with honourable people.

If your majority shareholder is a crook, you’re screwed. You can’t sell to someone else, and a crook won’t do a fair deal to buy you out. If you stay, you’re delaying the inevitable.

You will be screwed. Rather leave now than later. Rather be happy than hang onto the promise of a pot of gold that never materialises.

Focus on creating new wealth

You’re an entrepreneur, so you have the instinct to fight. To never give up. To persevere. This is one of those times where your instinct is wrong. If you fight, you’ll end up in the mud with a pig. Pigs love the mud. He’ll enjoy it, you won’t. Worst of all, you’ll invest energy in trying to regain what you had rather than creating new wealth.

It’s a bit like trying to win back the girlfriend who cheated on you, rather than going out and finding a new girl. Rather find a new girl.

Don’t seek revenge or short term satisfaction

Once you’ve accepted that staying is not an option, and nor is fighting, the next reaction is revenge. “Damn it, I’m going to punch him in the head!” Short-term satisfaction. Long-term, it makes you look bad. And maybe you go to jail.

The best outcome you can hope for is that your story gets traction in your industry/circle of friends/town before his story. Believe me, he has already told everyone he knows that you’re unethical and screwed him. That’s what crooks do.

Related: 7 Ways To Quickly Spot The Wrong Partner (And 3 Tips To Get It Right)

Good luck fighting the war of whispers. Rather don’t. It’s bad energy. Who cares what people think. The people who care don’t matter, the people who matter don’t care.

Let your reputation define your achievements

In the end your reputation will be defined by your life’s achievements, not by the words of a crook. If you are a nothing, no one will care about his words. If you make it big, no one will care about his words.

If you want revenge, be successful. Success is the ultimate revenge. The rule for partners is this: Make it easy for them to screw you early. That way you don’t waste a whole lot of time with the wrong partners.

Whatever happens, remember this: Life is an adventure. It’s your choice how you describe your story. Is it a sad drama (‘Oh woe is me’), or is it a funny story with some speed-bumps and a happy ending? Frame your story as the latter. You hit a speed-bump, not fun. But not the end. The truth is that business is rough and tumble. So toughen up.

Don’t lose faith in your abilities

This is where it’s useful to have a loving spouse. With him or her at your back you can withstand anything. Whatever happens, don’t lose your self-belief. You have the magic.

You’ve had a bad experience in business. So what? You trusted someone. That’s not such a bad thing. You just got a bit unlucky that he was a crook. Next time lucky. But there is no next time if you lose your self-belief.

Winston Churchill lost all his savings to financial con-men in 1929. He said he was faced with two choices: Fight to get back what he lost, or make more money. He decided to make more money. Keep moving forward. Don’t look backwards.

PS: The best way to deal with a crook is to play dead. Cut him loose. Don’t engage at all. Just play dead.

Related: 5 Things to Do Before Saying ‘I Do’ to a Business Partner

Listen to this

Alan’s audible book Be a Hero: Make Life an Adventure is now available on amazon.com and Audible.com

Read by Alan himself, Be a Hero is a collection of stories on how to make your life an adventure but also changing your mind-set and tackling adversity.

Ask Alan
Do you have a burning start-up question? Email: alan@herotel.com


Read ‘Be A Hero’ today

be-a-hero

Continue Reading

Company Posts

Make Absa Your First Business Partner

Thinking of starting your own business? We’ll help you think further with a start-up plan, funding, payroll guidance and Enterprise and Supplier Development solutions for your business.

Absa

Published

on

By

business-banking-partnership

Thinking of starting your own business? We’ll help you think further with a start-up plan, funding, payroll guidance and Enterprise and Supplier Development solutions for your business.

Firstly, consider opening an Absa Business Banking Account by choosing from our range of tailored transactional account options online. You’ll be able to make and receive payments through multiple channels that make your banking as hassle-free as possible with our cash handling solutions and merchant services.

Plus, if you are a new business owner you can open any of the business accounts we offer online, register your new company with the Companies and Intellectual Property Commission (CIPC) and get a South African Revenue Service (SARS) tax number in one go.

Related: Business Partners Limited Explain What It Takes To Have The X (Fundable) Factor

A business plan is also essential for every entrepreneur, as it forms the roadmap of how your business will achieve its goals and should include its operational, financial and marketing strategies. Our team of experts will always be available to give you all the assistance you need with your business plan.

Once you’ve drafted a comprehensive business plan and you are ready to venture into the world of business, your next step is to register your business as mentioned. SwiftReg assists with checking existing company names and registering your company’s name, B-BBEE certificates, clearance certificates and more.

We also offer advice to franchisees, whether you’re thinking about buying a franchise or want to turn your existing business into a franchise network. And, if it’s funding you need, we’ll work with you to find the right solution. Our business funding solutions cater for start-ups and existing small, medium and micro enterprises (SMEs) with working capital or expansion finance needs.

Related: 10 Questions to Ask Before Committing to a Business Partner

Lastly, when you need help moving your fully-formed business plan in the right direction, you can visit any of our Enterprise Development Centres across South Africa to build and grow it from inception until maturity through unlocking access to financing, markets and business development support services.

For more information or to open an Absa Business Banking Account online, visit our website.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Sign-up for Daily Newsletters

* indicates required
*
We respect your privacy 
Advertisement

Trending

FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​