50 Critical Partnership Questions for Startups

​​Before we get to the 50 questions, the first question you need to ask is do you even need a partner.  With roughly 22% of startups starting as partnerships, it certainly is a popular choice but is not close to the 78% that start as a sole proprietorship.  There are a lot of pro & cons to a partnership but before signing on the dotted line, make sure you ask the following questions with your planned partner sitting right next to you!

Company Name, Location and Hours

1. What are the partners’ names? Are they individuals, corporations or Limited Liability Companies? What is the designated name and purpose of the partnership?
2. Is each partner cool with the company name and tagline?  Will we register the company name and tagline as a trademark?   
3. Where will the office be located? Will we own it or rent it? Will any partners work out of a home office full-time or part-time?
4. What will be our working hours? What autonomy will partners have to set their own hours? Do we need to service clients during any certain time each day? How often will the partners meet to discuss business?  Can the partners agree on a minimum number of hours each will work each week no matter what?

Contribution to Capital - an entry on the shareholders' equity section of a company's balance sheet that summarizes the total value of stock that shareholders have directly purchased from the issuing company.

5. What will each partner contribute to the business in terms of:

• Startup Cash
• Special skillset
• Physical assets – desk, chairs, laptop, office supplies, etc.
• Real estate – actual property to do business on
• Tools and equipment
• Specific Intellectual property (know-how that the other partner(s) do not have)
• Network and professional contacts that the startup will definitely benefit from
• Professional reputation
• Hands-on labor – is there one partner who will be putting in a lot more sweat equity more than the other?
• Customers – who is bringing on who from previous relationships
• Insurance, benefits, company perks
• Marketing materials
• Family & friends capital – what can each partner bring to the table to boost initial cash position?

6. What is each partner’s ownership share of the business?  If it is a true 50/50 partnership, then think long and hard that there will not be any pent up emotions, regrets, or frustrations down the road.   Is the partners personal financial situation acceptable to the other partners? 

Accountability
7. How will each partner measure the job performance of the other partner(s) and hold each accountable for meeting expectations?  It is critical that expectation/roles of each partner are clearly drawn out with key performance indicators established. 
 
Taxes
8. What partnership structure will be chosen and how will that affect our taxation? e.g. general partnership, limited partnership, limited liability partnership (LLP) limited liability company (LLC).  Look at each closely and make the best decision that all partners agree with.
Liability
9. Will the Agreement limit the joint and several liabilities that partners have by law for their partners’ behavior? Will the partners’ contractual commitments and representations bind each partner?
10. What is the liability and repercussions if one of the partners does something illegal while representing the company?
11. What is each partners specific percentage responsibility to company debt?
12. How will authority and decision making be structured? Will the partners operate by general consensus?  Or, will it be  based on share of ownership? What is the tie-breaking mechanism used to avoid deadlock? Will partners have authority to control certain functional areas of the business without the approval or involvement of the other partners? What is the authority to act on behalf of the company without unanimous agreement?
13. What is the procedure for borrowing money in the company name? When does borrowing require approval of the other partners? What is the scope of expense account authority before needing to consult with the other partners?

Responsibilities
14. Who will handle what? How will your roles and responsibilities be divided? Who will have what management duties?
15. How will workload be assigned and monitored?  Each partner must be open to the other partner(s) holding them accountable.  Always remember the end goals & objectives of the company and take all pride out of the equation.

Personnel
16. How will the partners choose a lawyer, accountant, banker, insurance agent or any other professional service provider?
17. What process will be used to expand and admit new partners?
18. How will the partners hire employees or contract workers?
19. How will the partners select third-party vendors and suppliers?
20. How will the partners select customers or clients?

Insurance
21. What kind of business liability and/or property damage insurance will the company purchase?  Who decides on the coverage and limits?
22. Will we provide medical, life or disability insurance or a pension plan for the partners and employees?
23. Will the partners provide key man insurance on the lives or disability of the partners?  Will the company pay for all legal fees if one of the partners gets sued in the company name?
 
Ownership and Compensation
24. How will ownership percentages be determined?
25. If one partner had the original idea for the business, should he/she receive compensation or additional ownership rights?
26. How will profits be apportioned? How will losses be allocated?
27. What amount of profits will be withheld for investment back into the business?
28. How will salaries or draws against profits be determined?
29. How will company perks be assigned? Cars, event tickets, dinners, etc.
30. What other benefits will we provide? Vacation, holidays, bonuses, sick time, etc.
31. How will we provide for the unexpected? Serious family illness, disability, or some other life event that disrupts a partner’s ability to work productively?
32. What extent of absence from productive work will require renegotiation of the partnership agreement?
33. Who will keep the books? What financial statements will the partners receive? How regularly will they be prepared?
34. Are there any restrictions on engaging in other outside business activity?
35. Will partners forbid conflicts of interest and direct competition – require each to sign an NDA and non-compete for example?  Note that this is illegal in some states.

Buy/Sell Agreement
36. What happens to the business assets if a partner dies?
37. How will the value of the partners’ shares of the business be determined?
38. If a partner leaves, will the company pay for his share? Can a departed partner remain as an investor?
39. Will a departing partner receive the same amount for his share if he joins the competition?
40. What restrictions and approvals apply to a partner selling his share of the business to a third party?
41. Do the other partners have a right of first refusal for the shares of a partner who dies or leaves?
42. Can partners be involved, including owning, another business?
43. What is the process for firing a partner for incompetence or malicious behavior? What happens if a partner becomes impaired by drugs or alcohol, or gets arrested?
44. What process will we follow if an outsider offers to buy the business?  What valuation method will the partners agree on?
45. Upon dissolution of the partnership, how will shared assets be divided?
46. Who gets the rights to intellectual property, customer lists, company files and records?
47. Who can continue to use the company name and logo?
48. What method of alternative dispute resolution (arbitration or mediation) will be used in lieu of litigation to resolve disputes between the partners? How will the arbitrator/mediator be chosen? 
49. What is the procedure for amending the partnership agreement?
50. If a partner fails to make a contribution as provided in the partnership agreement, or otherwise violates the agreement, what are the consequences?

​Yes, these questions can be a little over-whelming.  While some are more important than others, they are all important to avoid the inefficiencies they can cause if each are not accompanied with an answer that all the partners agree on.  As they say, life and business will go by much smoother if your ducks are in a row.   

Scott E McGlon is the President of McGlon Properties, LLC and the author of many blog post on MP Blog.  He has been a serial entrepreneur, entrepreneur-in-residence, investor, and president/CEO of many successful start-ups since 1998. 

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