When co-founders part ways: what does your Partnership Agreement say?


Eighteen months ago a friend launched his start-up with his best mate.  They were making money, but they disagreed on direction and recently decided to part ways.  They didn’t set up a company, but they had a website, a client list, some cash in the bank and a healthy sum of future revenue.  

Did they have anything in writing setting out their share in the business?  They had none, nothing on paper, not even an email exchange - just conversations over beers, a handshake deal and the implicit trust of doing business with their (former) best friend.  One them was about to get screwed over.

Unlike a company, you don’t need to ‘create’ a partnership to be in one - running your start-up for profit is enough.  All of the sudden you’ll be jointly liable for each others’ actions in the partnership, unless you otherwise agree in writing.  Enter the co-founders Partnership Agreement.  It sets out your roles, your liabilities, your share of the profit (and loss) and a process for when things turn pear-shaped.

Partners are jointly liable for each others’ actions in the partnership, so documenting the rules is deadset crucial

Failure, for better or worse, is a part of being an entrepreneur.  No one likes talking about the break up during the honeymoon, but the odds of first time glory are slim.  Sit down, talk, argue, agree and write it down - it will save you money (and possibly a friendship) down the track.