Going into business with a friend: How to remain friends by planning ahead

We tend to associate with people we know and trust, which is why many new businesses start out as 50/50 partnerships between friends or family members. Despite the potential for differences of opinion, maintaining harmony in friend and family relationships even as business partners is possible with a little careful planning.

Unless the owners agree otherwise, default state laws govern partnership and limited liability company management. These laws generally provide that partners or members of an LLC share equal management rights, and that most decisions must be made either by a majority or unanimous vote.

For a business with 50/50 ownership rights, these default rules can create a conundrum in the event of a disagreement. With no majority vote on a decision, important matters may simply go unresolved or produce unnecessary conflict. However, planning around these default rules from the beginning can prevent deadlock and promote progress.

There are several different ways that business partners can plan ahead for efficient decisionmaking; which is best for your partnership will depend on your particular needs. If one partner is contributing more financial backing to the venture and therefore taking on more risk, it might make sense to allow her more say on important issues via the operating agreement. Or, if one partner wants to forgo any management responsibility and simply act as a passive investor, a limited partnership may be the optimal choice of entity. Alternatively, the members of an LLC could forgo significant decisionmaking altogether by forming a manager-managed LLC.

No matter what form your business takes, a little planning ahead can go a long way in maintaining your relationships and ensuring your business’s success.

 

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