5 Reasons to Avoid a 50/50 Partnership
It sounds so good on paper: you've got money and resources and your partner has ideas and technical expertise. Or you both share the passion and now you want to share the business. Going into business with a partner can make your small business dream a reality.
It can also turn into a nightmare. So while a 50/50 partnership with a friend, spouse, or colleague may sound fun, you may want to rethink that plan.
- Liability Issues: Most entrepreneurs avoid partnerships because of the unlimited liability of each member for the partnership as a whole. That's especially true when it's just the two of you. So as the only other partner, you're on the hook for any debts the partnership accrues.
- Flexibility Issues: Without a partnership agreement specifically addressing the issue, one person's stake in a partnership cannot be transferred to the other without prior consent. This can be a problem if you and your partner have disagreements or one of you wants to exit the partnership.
- Stability Issues: Let's say your partner up and quits. Or files for bankruptcy. Or worse, he or she passes away. So does your partnership. A partnership is dissolved as soon as one member exits, which can mean your business is over in the blink of an eye.
- Authority Issues: Determining each partner's role can be more difficult when there are just two of you. While you can split the authority evenly, deciding who does what can lead to personal and professional clashes.
- Exit Issues: As noted above, the increased liability and decreased flexibility of a 50/50 partnership can make leaving or dissolving the partnership more difficult. Certain partnership agreements could require prior notice and there are debt considerations that may have to be taken into account before you can exit the partnership.
If you're considering a 50/50 partnership, or considering getting out of one, you might want to consult an experienced business organizations attorney first.
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