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Do friends make bad business partners?

Jan 13, 2022 | Business Litigation

The moment when you have an idea for a new business is an exciting time. You quickly surround yourself with friends and family who support your vision and will help motivate you to see it through.

When you start moving forward, you may have a friend who seems to have the same vision, and their experience might complement yours. As you begin to gain traction, you might consider making your collaboration with your friend an official partnership.

Here’s what you should consider before creating a business partnership with a friend.

An honest evaluation

There are many cases where friends become business partners because the owner does not want to say “no,” and the friend is providing some benefit. While the friend may not be the best fit, it can be difficult to create a boundary.

Regardless of the stage of your business plan, it is essential to make an honest evaluation of the people supporting you and what value they add to the business. Consider whether your friend is truly a partner or if they could make a supportive employee. In some cases, you may need to thank them for their time, exclude them from the business for the future.

It is crucial to make these evaluations early to know how to move forward and whether to make your friend a partner.

Official beats accidental

Often, business owners allow a friend to act as a business partner without making any formal declaration. The trouble with this approach is that it is fine until it is not.

When there is no formal paperwork defining your intentions, you risk forming an accidental partnership. A friend who becomes a partner (even accidentally) can become an issue because they could create debt in your business’ name as well as a claim on your profits.