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Do business partners need to enter on equal terms?

On Behalf of | Oct 20, 2022 | Business & Commercial Law |

If someone offers you a business partnership, you might hesitate because it seems like too big a commitment. Perhaps you cannot afford to invest as much as them. Or maybe you just can’t dedicate the same amount of time.

The good news is you may not need to, and it may be better if you don’t enter on an equal footing. When partners enter with 50:50 stakes, things can get complicated when they don’t agree (which is bound to happen sometime). Allowing one person to have a larger stake can avoid a stalemate. If you disagree, the person with the majority decides.

Some people prefer a lesser role

Think about why the other person invited you to join them. What is it you have that they need? Maybe they know you have a talent for marketing and making contacts that they don’t. Perhaps you have a technical skill they need. Both those things may not require nearly as much time as the day-to-day running of the business, which they are keen to do themselves. So entering on a lesser standing could work for both of you.

You might choose to become a limited partner

If what the other party really needs from you is your money, then they may offer you a limited partnership. You would stand to make money if the business succeeds, but you do not need to get into the day-to-day running of things. In fact, you cannot; otherwise, you would not qualify as a limited partner and would lose the protection of your personal assets this gives you. The other person, known as the general partner, does not get the same protection.

If you are considering entering a business partnership, get legal help to understand the implication and review the contract on offer.