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When considering how to structure your new business, a partnership can be a tempting prospect for several reasons. You can share the burden and stress of the new business with a partner or group of partners, spread out the financial cost and workload, and get additional support. However, not least because a partnership exposes you to shared liability, you should be alert to warning signs when considering going into a partnership with others. This article sets out three warning signs to watch for, including when:

  • a partner has a mysterious financial history; 
  • they are unwilling to compromise; or 
  • you do not know what they are bringing to the table as you launch your business.

A Mysterious or Concerning Financial History

In a partnership, you will take on shared liability for any debts that your partners may incur through the business. You must remain conscious of this fact when considering entering the partnership. There is a very real and significant chance you might take on your partner’s financial burdens. 

For that reason, it is a red flag if your partner has a financial history that is mysterious or concerning in some way. For instance, you should ask more questions and seriously consider whether a partnership is a good idea. You might want to rethink the partnership structure, or just the one specific partner, if they:

  • have outstanding debts from a previous business; 
  • have a very unclear personal finance situation;
  • are reluctant to conceal their true financial standings to you; and 
  • make comments about how the business or partnership may be a good tool for helping out the partners with separate financial problems they might have, like offering a loan or other assistance. 

A Partner That is Unwilling to Compromise

There are always differences of opinion in any new business. A serious red flag is a partner who is unwilling to meet you in the middle when you disagree about an aspect of the new business. Perhaps you disagree on the business’s name, the long-term goal of the business, or even something specific like the details of a product or proposed service. 

If your partner takes the attitude that it is ‘their way or the highway’, you need to question if they will sustainably manage a business in consensus with their partners. Partnerships tend to feature relatively equal partners who all share responsibility for a business. Even if one partner is ‘in charge’, they must be able to work collegially with other partners. If your partner is unreasonably uncompromising in the initial startup phase, this can be a bad sign. 

Being Unsure What Your Partner is Bringing to the Table

Sometimes you might really like your partner on a personal level. However, you might not be sure what exact skills they can bring to your new business. Maybe the business was your idea, and it is your intellectual property or technical skills that will be the driving force for the business. Or maybe your partner just does not have the skills or experience to be a credible leader for the business. 

No matter what, if you are having second thoughts about a partnership, you should seriously consider this before you take formal steps to set up the partnership. If necessary, talk to trusted advisors and your partner to check if a partnership is the most suitable business model for you. Potentially, forming a company can be a better approach. 

Key Takeaways

Some clear warning signs can signal trouble at an early stage of a young partnership or proposed partnership. Some of these relate to a partner themselves, such as their personal financial history or history of debt or other business liabilities. Another factor to look for is how you get on with the partner at this early stage. Are they willing to compromise? Are they bringing valuable skills, experience and contributions to the table? If you are unsure about some of these, it may be a good idea to reconsider the partnership.

If you want to know more about forming a partnership or getting advice about doing so, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What should you do if you change your mind about going into a partnership with someone?

You should talk to your partner and be clear about any reservations you might be feeling. You may be able to work out a solution with them or adopt a different business structure that is more relevant. It can also be helpful to talk to trusted advisors and consider their outside view.

What should you do if your partner has a mysterious financial history?

It is crucial to understand if your partner is keeping things from you, such as a history of business debt or serious liabilities. You should ask direct questions and work out their financial situation, especially if they have existing and ongoing debts.

How do you know if your partner is the right fit for your business?

There is no one size fits all way of knowing if your partner is the right fit for you and the business. Sometimes you can only work this out through experience! However, looking out for warning signs and getting an outsider’s view from someone who knows both you and your partner can be helpful.

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