Avoid Partnership Problems

Partnerships always have problems. Whether it's an argument over sales and marketing strategy, or a dispute about equity ownership, I have seen it all. That's why my work often involves helping partners work more effectively together to achieve their goals. Let me give you one key idea that can help you avoid headaches and lawsuits.

Back in the 1980s, one early, pioneering computer distribution firm was Micro D. Their president was Rich Lionetti. Ingram bought the company and it became Ingram Micro D, and later Ingram Micro.

I remember riding with Rich in his car shortly after the buyout. I asked if he was upset about not being included in the management team of the new organization. He laughed. He responded by saying he had learned years before the most important part of any agreement is how you get out of it, not how you get into it. He had structured his employment agreement with Micro D so he got a handsome payout when the buyout occurred and it did not negatively affect him.

Too often I work with partners today who want to change or end their partnership, yet they idealistically set up their company with equal shares of equity and no easy exit clause.

My grandfather, Chester MacPhee, learned about partnerships the hard way while working in real estate. He taught me decades ago how to structure a partnership and it is actually quite simple. The partnership agreement must include a clause that one partner can offer to buy out the other partner(s). The partner receiving the buyout offer can accept or buy the offering partner out under the same terms and conditions. This eliminates any debate about continuing the partnership or the value of equity.

The reason this type of clause is a necessity, not an option, is because it removes subjectivity and emotion when it comes time to end the partnership. All partnerships end. If the partner(s) receiving the offer feels the amount undervalues the business, then they can take advantage of the situation and buy the company themselves. If the price is high or at least more than they are willing to pay, then the partner can accept the offer. Either way the transaction is fair, consistent with their original agreement, and allows all partners to move on in their careers.

The only wild card in this type of agreement is if one partner has a unique skill set. For instance, if one partner owns all the customer relationships, or they have a unique set of technical skills. However, that is just something you have to be aware of when you get into the partnership in the first place.

I recently learned that some people refer to this as a shotgun clause. You can search the web and find a lot more information if you are interested.

I strongly recommend if you are forming a partnership that you include a shotgun clause in your partnership agreement. If you have an existing partnership, then I encourage you to ask your partner(s) to adopt a shotgun clause as part of your partnership agreement.

This is just one of the ways you can avoid partnership problems, now and in the future.