Partnerships are one of the most popular types of business ventures. They are relatively easy to establish and provide numerous benefits to the partners, including pass-through taxation. When two individuals have complementary skills, forming a partnership may seem like an advantageous step in running a successful business. However, what if the partners have a relationship outside of the partnership? Is mixing business with pleasure ideal in the workplace, or does it cause more potential problems with partnerships?
When you start a business with a loved one, you have the benefit of both partners wanting to succeed because you care both about the person and the business. However, there are pitfalls that need to be avoided so that the partnership remains professional and separate from the personal side of the relationship.
Married Partnership Success Stories
Married couples have a natural chemistry, and if this chemistry can be transferred to a business environment it can make for successful entrepreneurship. One particular success story, a company worth $200 million, was created by husband and wife Kevin and Julia Hartz. The married couple has been running Eventbrite for five of the five-and-a-half years of their marriage.
The couple brainstormed their partnership in the midst of planning their wedding, proving early on that they worked well as a business team. With Kevin taking the reigns as CEO and Julia serving as the company's president, their business idea is now a multimillion dollar company that provides online event management and ticketing services to more than 21 million people annually.
If you have ever sent a physical gift through Facebook, you can thank the husband and wife team of Arielle Goldman and Jonathan “Natan” Packin for developing their partnership called GiftHit. While the couple was dating, they came up with the idea of sending gifts through the popular social media site so that Facebook users could easily select a gift recipient, select a gift item from a dropdown menu and then send it virtually. The recipient receives a Facebook post alerting them of the gift, along with instructions on how to receive it. Nearly two years after this brainstorm became a reality, the couple's small business now has three employees and more than 35 New York businesses involved in their venture.
The Flipside of the Coin
Not all partnerships with loved ones work out though. Husband and wife Len Bosack and Sandy Lerner founded the technological powerhouse Cisco but later had a very public falling-out that forced Lerner to leave the company, She went on to own a cosmetic line.
To avoid the pitfalls, here are some basic steps to remember:
Try a trial run of the partnership to test out the business relationship. This can be done by keeping the business home-based until a successful venture is reached.
- Treat both the business and the romantic relationship as partnerships, and establish how you will successfully grow as a team with a specific hierarchy.
- If time permits, have one of the partners moonlight so that a paycheck is still coming in while the partnership is getting off its feet.
- Don't spend the workday fighting about personal issues; make sure they are reconciled before each workday begins, or agree to put them “on hold” for later.
- Maintain respect for one another and listen to each other's thoughts, ideas and concerns. In addition, set boundaries so that work life doesn't spill over into the romantic side of the partnership.
- Always have an exit route in place so that, if the business doesn't work out, the relationship is not sacrificed if the partnership dissolves.
There are many stresses when starting a partnership, including raising capital, finding investors and finding the time it takes to build the venture. One of the important things to remember about a partnership is that general partners are 100% liable for the actions of their spouse. This means if one partner makes a mistake, the other partner is liable for that mistake, along with any debt or other obligations that go along with the error. If a mistake is made in the marriage and the partnership ends up in divorce court, this dual liability may also fall apart.
Protecting Your Stake (and Marriage) in a Partnership
There are many advantages to forming a partnership with a spouse, but one of the most common reasons for failure is the lack of a formal partnership agreement. Spouses should have a legal agreement that places restrictions and limitations on each partner's decision-making abilities. The agreement should state, among other things, how decisions will be made, how profits will be shared and how disputes will be resolved.
In cases where the partnership does not work out, the legal agreement should also describe in detail how partners can be bought out, how new partners will be admitted to the partnership and what steps should be taken if the partnership needs to be dissolved. In the end, the success of the marriage and the success of the partnership are both at stake.