The Problem with Partnerships-Can We Really Trust Them?

Human nature.

business-partnership

William Faulkner, the great American writer, described human nature as the only subject that doesn’t date.

It’s also the biggest source of problems in partnerships.

Let me explain.

Lisa and Rebecca worked together for about 5 years in a leading nationwide chain of beauty salons. They became good friends and regularly socialized together.

In 2013, they decided to lease a little shop unit, quit ‘working for the man’, and opened their own salon on the Northside of Dublin.

They were confident about doing well as they both had a substantial number of potential clients lined up-from their existing job in the salon, and through family and friends. Both of them had a huge number of ‘friends’ on Facebook and anticipated being able to leverage this for their new venture.

Luckily for them their employer hadn’t bothered with a ‘non compete’ clause/restrictive covenant in their contract of employment, so there was nothing to prevent them from getting their new venture off to a great start with a healthy dollop of momentum.

Despite the state of the economy and the scarcity of ‘disposable income’ for the last 5 years, their salon flourished, because they worked hard, were very professional in their approach, and brought a substantial number of existing clients to their new business.

About 15 months ago, though, Lisa met Mick, a Garda stationed in Dublin. Mick was from Galway, never really settled in Dublin, and was anxious to get a transfer back to the West of Ireland.

Lisa and Mick really hit it off from day one and their relationship blossomed. After a whirlwind romance, they got engaged at Christmas 2013, and Rebecca was delighted for them.

However, in January, 2015 Mick received notification of his long awaited transfer to Galway, and he’s delighted.

Lisa is looking forward to starting a new life with her fiance and has always heard that Galway is a great city.

She’s thinking too that it would be a great place to start a family.

It will mean the end of the partnership, of course, and she hasn’t told Rebecca yet.

She’s not sure how Rebecca will react to the news but Lisa assumes that Rebecca will be fine with it because Lisa plans to sell her ‘share’ of the partnership to Mary.

Lisa doesn’t’ see any real problem with Mary being accepted by Rebecca into the partnership, although she realises the change might be a bit of a shock to Rebecca at first.

She’s a bit worried, though, that Mary won’t pay her enough for her share, and has some concern about Rebecca’s reaction, especially as she doesn’t know Mary.

Partnership problems

Partnerships tend to arise between friends, or perhaps work colleagues. Both partners start out with the best of intentions and cannot envisage serious problems arising.

But life gets in the way and over time jealousy, resentment, and a feeling of unfairness can arise. One partner feels that he does more, works harder, commits longer hours, and makes more sacrifices for the business.

Unfortunately, this is nearly inevitable because dividing up the work and responsibility in a strictly 50/50 way can be virtually impossible.

Let’s assume, though, that the partners have started well and have had no insurmountable problems.

As they get older their circumstances will change-just look at Lisa and Rebecca’s situation.

Each of them may enter into new personal relationships, perhaps marry or take on a mortgage or other commitments.

And it may well be the new girlfriend/boyfriend who will ‘rock the boat’ by suggesting that the other partner has more time off or is getting the best of the arrangement.

Tensions can then build leading to the most apparently insignificant issues leading to simmering rows.

These rows than then become more frequent and more serious leading to resentment with both partners wondering how to resolve their difficulties, and perhaps wondering whether they would not be better off going their own way.

Not only is the partnership put under severe strain; personal friendships can also become strained and fractured.

Written partnership agreement

If there is no written partnership agreement the resolution of any difficulties can be problematic as the parties will be relying on the Partnership Act 1895 to signpost answers to difficult questions.

Difficult questions may then arise such as which property is partnership property and what belongs to the individual partners, how can a partner exit from the business, what about existing liabilities of the business, who pays the Revenue Commissioners, what happens if 50/50 partners simply cannot agree on the direction of the business and they’re deadlocked, what happens if one partner is seriously ill for a considerable period of time, etc.

What to consider now

You need to think carefully about providing for the normal changes which take place in any relationship, and which will probably crop up in your partnership.

One of the best ways to provide for this is to have a partnership agreement drafted. You would try to provide for various ‘what if’ scenarios which might crop up, and anticipate crises and how they might be resolved.

Partnerships can work well, but you do need to go into it with your eyes wide open and a healthy awareness of the problems which inevitably occur.