Starting a business with your best friend can sound like a match made in heaven. You already trust each other, you work well together and you’re excited about building something amazing. However, without proper protection, your dream partnership could quickly become a nightmare.
Before you dive into entrepreneurship with your best pal, it is important to safeguard both your friendship and your business. A partnership agreement can do just that.
The friend advantage in business
Working with a friend offers many benefits. You start with built-in trust, open communication and shared goals. You know each other’s strengths and weaknesses, which can make your business stronger.
But friendship alone won’t protect your business. You need something more concrete: a partnership agreement.
Think of a partnership agreement as insurance for both your business and your friendship. Without one, you risk:
- Losing money if disagreements arise
- Damaging your friendship beyond repair
- Creating legal problems that could last for years
- Putting your personal assets at risk
- Facing tax complications
The agreement isn’t about not trusting your friend or believing in your business. It’s about making sure you both understand what you’re getting into.
What your partnership agreement should include
A good partnership agreement should cover:
- How much money each person puts in
- How you will share profits and losses
- Who makes what decisions
- What happens if someone wants to leave
- How you will resolve disputes
Partnership agreements aren’t legally required in Alberta, but business professionals strongly recommend them. Sit down with your friend and talk openly about these topics.
Remember to write everything down. Verbal agreements can be enough to form a partnership, but they aren’t enough when it comes to real protection and solutions to money and legal issues.
The real cost of skipping this step
Not having a valid contract can have serious consequences. Without an explicit agreement, you may be personally liable for your partner’s actions, and your business assets may be at risk. In Alberta, having a written contract can help you avoid costly disputes and lawsuits.
Ultimately, starting a business with a friend can be a great experience, but it’s essential to prioritize caution and protection. By signing a partnership agreement, you can safeguard your relationship, reputation and resources.