For small and one-person businesses, a great way to pursue bigger projects and expand your business is to partner with another business, often another solo operator but sometimes a larger firm. Say, a graphic designer could partner with a web developer on a project to produce a local directory funded by advertising dollars. Or, an insurance consultant could partner with an accountant to put on an special event on health insurance options for small businesses.
The possibilities are endless — and so is the potential for the relationship to go awry.
Here’s a quick rundown of some of the more important legal and practical realities to consider.
Who should consider partnering? I’m putting this first because I meet a lot of fresh entrepreneurs who find it intimidating to partner up with anyone. So, first off, let me say you should not be intimidated to consider arrangements like these, even if you’re a solo operator allergic to contracts. Yes, you do need to execute a contract with your partner(s) in order to do it properly, but it’s not that hard to do. Anyone in business for themselves needs to be comfortable with contracts and agreements anyway. Look for quality templates (Nolo has tons) and use them, customizing them for your specific situation. Ideally, you’ll also have an ongoing relationship with a lawyer who can review work you’ve done and answer the more detailed questions you’ll sometimes run across.
Bottom line: Don’t let your aversion to anything “legal” put you off of partnering.
What is partnering? By “partnering” I mean your business (yes, solo operators and freelancers included) joins forces with another business for a short- or long-term project, where you both “own” and are invested in the project in certain essential ways, in particular:
- splitting profits (with whatever distributions you decide)
- splitting costs (again, how you divvy those up is up to you), and
- sharing control.
Legally speaking, the typical way this is done is for the two companies to execute a joint venture agreement that covers all the necessary details. Basically this is just a specific type of contract that outlines the important terms of the agreement between the partners (again, the most important of these have to do with profits, costs and control, but other critical issues include termination provisions, intellectual property, etc.).