Newspaper article THE JOURNAL RECORD

The Equal Partner Predicament

Newspaper article THE JOURNAL RECORD

The Equal Partner Predicament

Article excerpt

If two budding entrepreneurs are contemplating the startup of a new retail business venture as a 50-50 partnership, they might want to reconsider.

Partnerships are good, but 50-50 partnerships can be quagmires. Why? Because these alliances are usually formed by friends who want to start a new business together. These chums believe they will never have a major disagreement, but fate usually intervenes.

Suppose two 50-50 partners, Ed and Ted, own a business. Several years into the business, Ed wants to take on a new product line and Ted doesn't -- so who wins? If they take on the product line and succeed, all may be roses. But if they take on the product line and fail, Ted will be angry. And the next time they disagree on a decision, it had better go Ted's way, or else. All partnerships tend to be stressful, and often in 50-50 partnerships, employees and outsiders may be confused about who's in charge. When a dominant partner emerges (as is usually the case), the other partner may harbor resentment. And as soon as a partnership starts making money, the executive disagreements create more problems; the more money involved, the bigger the problems. One alternative I recommend is to bring in a "referee," who should be an outside person having nothing to do with the day-to-day operation of the business. Each major partner owns 49 percent and the referee holds 2 percent. In this manner, the referee can step in to make decisions if necessary. Rarely is the referee called upon, because just the fact that this outsider is empowered to step in and resolve conflicts helps the partners settle disagreements themselves. Then there's the problem of how to dissolve the partnership amicably. If you both have lots of extra cash, you could have your attorney set up a lengthy legal agreement spelling out every possible contingency, but I have a better idea. Consider the conflict of two children both fighting over the last piece of apple pie. …

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