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For people starting a new business venture with others, one huge question that comes up at the early stage is the structure of the relationship and how to structure the partnership.
In a previous post, we discussed the idea of dividing your shares equally between founders. This assumes that you've all decided to be partners or shareholders in the same entity.
But there are other options if you want to join forces with other parties when launching a new idea. Here are your main options:
The Partnership: Often times, people decide to go into partnership with others. This type of arrangement would allow the parties to split their ownership interests and profits interests based on what they declare in the partnership agreement. The agreement would also designate which partners have decision making rights and which ones are "limited" and have minimal decision making rights.
The Strategic Alliance: A strategic alliance can take many forms. It can be as simple as a contract for a specified term and with specific services provided by the parties. Or it could be an ongoing relationship. Depending on the laws of your state, this could sometimes be classified as a general partnership, so be careful if you decide to enter into a strategic alliance.
The Joint Venture: Again, a joint venture can be much like a strategic alliance. There can be flexibility in the terms. It can be for a period of time or ongoing. And the parties don't necessarily have to share profits but can define how the money is to be split. Many times, however, people tend to formalize a joint venture by making it a true partnership or LLC. Also, be careful of state laws that could classify the joint venture as a general partnership.
There are numerous ways to join forces and conduct business with others. Before you decide to enter into any business arrangement with others, you should consider what you want out of the relationship and how much control you are willing to give up. These factors can help you determine a road map for going forward.
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