6/20/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Should you be wary of partnering with a friend?"

Dear Dave,

I’ve just entered into an LLC partnership with a friend. My biggest fear is that everything will fall apart and everyone will walk away mad at each other. 

We’ve used a CPA to get a tax ID number and set up initial formation of the company. Is it worth paying a lawyer to help us set out the partnership agreement in writing? 

Mike in Houston, TX



Dear Mike,

Having a written partnership agreement drawn up like that is the only shot you’ve got at walking away from this business and still being friends in the end. You don’t need to go spend $5,000 on partnership documents. I doubt your new business needs that level of detail. What you’re looking for is someone to help you draw up a template that answers all of the questions you’re going to have. That template will simply list all of the things that can go wrong in a partnership and lays out answers to all of those scenarios. These would be things like death, disability, moral failure, bankruptcy – and what happens if, or more likely when, this occurs. There is seldom a problem if everyone makes a pile of money. It’s when the guy runs off with his secretary. You suddenly decide you don’t want to be in business with him. You’ve got more sympathy for the wife he left behind with two kids to raise and you don’t want to be his partner any longer. If that kind of thing happens, what are you going to do? You’ve got to have that worked out ahead of time. Everyone has to agree up front on how to deal with all possible exit scenarios. 

-Dave
 

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