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Perfect Partners in Business
Many people find friends and relatives completely unbearable, even on a week's holiday. Yet, they frequently introduce the same people into their business as business partners. Does that sound logical, or sensible?
The most necessary question to be asked should be whether a partner is needed at all. After all, this is someone who can and will influence the direction of the business which you want to operate. It’s a real possibility that whoever your partners may be that you will not be able to stand working with them. So what if this turns out to be the case – how can you deal with it?
Agreement - Sensible and prudent business people will ensure that a partnership agreement is firmly in place at the start of such a relationship. This will detail what will happen and how it will be resolved, should a problem arise. Without such an agreement you may find that your ex-partner has also walked away with most of your customers! It happens. So, before deciding who will be partnering you in your business, ask yourself - Why do I need them?
If there is no useful reason then don’t have a partner. IBAS has researched thousands of business failures, including partnerships. Many would never have been formed if the correct questions had been asked. If there are good reasons for taking a partner then make all the arrangements carefully before any business trading takes place. Don’t accept verbal assurances on any issues relating to security, funding or assets. Obtain facts and proof. Incorporate any agreements and understandings into a legally binding document before agreeing any borrowing.
Problems - Over the last seven years IBAS has received a large number of membership enquiries relating to partnerships. Every week the same issues keep coming up. Having seen the same problems many times over it is worth outlining why what seems a good idea can quickly turn into a personal financial disaster. The biggest single concern in all partnership cases investigated by IBAS has been the ‘joint and several’ clause. The ‘joint and several’ clause is written into all partnership legal documentation where borrowing, or security for any borrowing, is concerned. When a partnership is dissolved, or the business fails, it is the joint and several agreement which protects the lender.
In many cases IBAS has witnessed one partner losing everything while another seems to have escaped totally. Ignorance is no defence against the joint and several agreement. The agreement in its most simplistic form means that any partner is fully liable for the actions and all debts of the partnership. This can be considerable when outstanding leasing; HP and bank borrowings are added to normal business creditors.
Bank - It is not unusual for a bank to support one partner in a new venture, while pursuing the other/s for repayment from a failed business! Often, only the bank will know the true position with regard the liquidity, or otherwise, of the partners. A properly researched partnership agreement should protect against that eventuality. IBAS receives many letters protesting against the way in which the bank is demanding payment, using the joint and several clauses. Unfortunately, it is not unknown for a bank to make a ‘mistake’ and seek to enforce security to which it is not fully entitled! Preventing any such ‘mistake’ should be a major priority for any business. Specialist help is necessary as this is not DIY territory!
Agreement - Partnerships can work very well and indeed many large professional organizations are partnerships. The larger organizations will have a clear and defined policy regarding borrowing, security and responsibility for decision making. In smaller partnerships these areas are neglected. Partners rely on informal verbal discussions and assurances. This is where the surprises spring from at a later date.
Hasty decision making, based on inadequate, inaccurate verbal information, plus general lack of knowledge are a powerful recipe for financial failure.
The solution is to be wise before the event, not after. Large companies have specialists to advise. Small business cannot afford that luxury, but neither can they afford to do nothing. Failure is extremely costly. Prevention is not. - Eddy Weatherill IBAS
'Perfect Partners' was written by Eddy Weatherill - chief executive of IBAS and published in November 1998 in UK Business Magazine.
This content is provided for easier distribution with IBAS permission for your use.
This article is still relevant today and IBAS receive a great many enquiries about Business partnership and business banking Director's Personal Guarantee issues which are associated with business and banking partnership dispute issues.
Independent Banking Advisory Service (IBAS) - launched in 1992 as a specialist business banking membership organization assisting bank customers with UK business banking account loan disputes and business banking debt disputes with their bank. Our analysis and investigation of business bank loans, bank accounts, banking contracts, business banking account facilities and banking debt recovery information has been instrumental in our member's success.
Last modified: 24th January 2020