Picture this. You and your best mate, that you’ve been friends with since you were wee, are aspiring entrepreneurs. You’re both thinking “hey, why don’t we go at this together”, you decide to join forces. What could be better than working alongside your best friend, right?
You’re brainstorming when finally, you land on the perfect idea…now it’s time to set things up, officially. You’re going down the partnership route to begin with, a great option!
All of your planning is going as swimmingly as it can (you know there are always rocks in the road, that’s normal). You then come to a crossroad…the contract.
You’re stuck in two minds. On one hand, they’re your closest friend, you’d trust them with anything, you’ve been through thick and thin together, do you want to make it seem like you don’t trust them by suggesting getting a contract in place? On the other hand, you never know what could happen down the line…and you want your backside covered.
Your friend stumbles upon this though too, saying “nah, we don’t need a contract. We’re mates!”
Here’s why you ALWAYS need a contract in place, even when you’re going into business with your ‘besties’:
The reason I’m chatting about this today, is because I had this exact issue pop up recently with a client. The client entered a partnership with their friend, only to essentially be screwed over…and there was no partnership agreement in place, because the friend said it wasn’t necessary, just like the above scenario.
In this instance, I’m chatting about partnerships and partnership agreements, but this absolutely stands for other business structures and collaborations too.
A partnership agreement has two purposes. One is the inevitable, it helps you deal with issues down the line should any arise…i.e., having to go to court (obviously we hope this would never happen, but you’ve got to prepare for the worst). The second is the outline clear roles, goals, and BOUNDARIES.
Now I, of course, hope that if you’re in this situation you remain bezzie mates with your friend forever…but remember, running a business is an immense amount of pressure, you’ve got to factor in that something could go wrong on this journey together.
Here are a couple of scenarios to consider, that’ll make you realise just how important having a contract in place is….
1) You don’t have a contract. That means roles and obligations aren’t really, officially in place (yes, you might have talked about it, but can we really rely on memory alone? I’d say no). You end up being the skivvy that has to do ALL of the work. You’re annoyed and tired, and you don’t even have a contract to fall back on. Outline clear objectives and obligations from the VERY beginning, so you know exactly what’s what
2) You don’t have a contract. That means it’s super unclear who owns the intellectual property within your partnership. Now your mate is claiming to own all the IP (perhaps stuff you’ve worked tirelessly on creating) and is using it to their advantage…not fun at all.
3) You don’t have a contract. And now you don’t know who accounts for the profit. Money is always a SUPER tricky topic. Your friend is now claiming 70% of the profit that you’ve made together is theirs. If you cover this base in your contract at the start, you’re sorted throughout
If you’re partnering with your mate, here’s what you need to do.
1) Get everything in writing. Don’t rely on memory, goodwill, or trust alone, establish clear boundaries from the offset
2) Communicate. I know, such an obvious one, but you’d be surprised how many rush into partnerships without chatting every little detail through
If you’re heading into a partnership (or any kind of business relationship), why not have a chat with a member of our legal team first? Make sure you know what you’re getting into and what legal docs you need in place to protect everyone involved (including you).
Hop on one of our totally free, no obligation legal advice calls by clicking right here!