Two different cases of mixing friends/family have come up in conversation the past two weeks so I decided it was time to address this issue via a blog post. Contrary to what you may believe, business and friends/family do not mix well. When you start discussing the idea with friends/family they might get just as excited as you about the concept. They may want to join you. Because you are good friends or family you do not think it is necessary to create a legal document, such as a partnership agreement. Your friend/family might be insulted if you require them to complete such an agreement. So, for the sake of your relationship you start the business together on a hand shake.

A few months into the new venture you notice that your friend is not doing the job they agreed to do. You notice you are having feelings of regret or doubt that you made the right decision to bring them on. First you decide to talk to them and remind them of their role. If everything goes well they will make the necessary changes. If things do not go well and they get mad, your relationship starts to deteriorate.

A friend of mine, Sally, started a business with a good associate, Beth. They created an LLC (Limited Liability Company) and signed a very generic partnership agreement. Sally became a little frustrated that Beth wasn’t pulling her weight in the business. Beth was busy looking for a job instead of working in the business they were building together. Beth accepted a job offer. Sally was glad because she could see that the partnership was not working out the way she had hoped.

Sally wanted to “buy” Beth out, but the partnership agreement they signed didn’t have any language to guide them on this type of transaction. Sally was stuck. It was likely she was going to have to pay Beth an amount larger than she thought Beth deserved. Sally and Beth had a conversation and they both agreed Sally would become the sole owner of the business. Weeks passed and Beth had not taken any steps to sign her portion of the business to Sally. Thankfully, Beth was going through a divorce and she did not want Sally to get stuck dealing with her soon-to-be ex-husband. Sally was able to create a simple document they both agreed was fair. Today Sally owns the business.

Sally’s dilemma could have been avoided if the original partnership agreement included language about buy-outs or terminations of interest. Creating a formal document to describe your partnership is a good business decision and it can save the relationship in long-term.