Contracts
Q: I am considering
starting a hair salon with two other people. We have an opportunity
to buy an existing salon at a very reasonable price. One partner is
very experienced with running salons and is also a licensed
beautician. She will be hired only to run the business, but she
will not have ownership of the business. The other partner and I
will split the upfront financial requirements and handle the books,
bills, etc. We are planning to incorporate the business and split
ownership. However, I want to know how the business contract should
be organized so that my financial interest will be protected. How
is this explained in the contract?
A: It sounds like
this is a reasonably simple deal, but there is only one place to go
to be sure that your interests are protected. You definitely need
to talk to an attorney and get them to draw up a contract for you.
There are tons of gotchas in something like this, and unless
you've done it a lot, you won't think of all of them.
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That said, I do have one piece of advice: While it is important
to have an attorney to draw up a contract, I don't believe a
business relationship should be based on the letter of the
contract. By that I mean that you must draw up the contract so that
it is fair to everyone and so that everyone gets what they want out
of the deal. Also, make the contract such that everyone can have a
way out, if they want it, that doesn't hurt the other partners.
I say this because if you ever have problems in the relationship
with either partner (and the odds are that you will), you'll
need a way to gracefully separate. Long term, if everyone isn't
happy and doesn't think they got a good deal, then it won't
work. And even though you may have a legal right to force someone
to do something, if they aren't willing, you will have a very
hard time running a successful business. So get an attorney to draw
up a contract that is fair to all parties and spells out what is
expected of everyone.
Do You Need a
Partner?
Q: I will be
graduating from Penn State University next December, and I am
seriously interested in starting my own business. I served four
years in the military, and during that time I was successful in
writing a business plan that was approved by a bank for financing.
I turned that offer down because I was not ready to live in that
part of the country. My question is this: I have a plan for a
business, but I could really use the help of having a partner. What
should I look for in that person?
A: That's a
tough question. I think finding a partner is like finding a mentor.
(See my article "Finding a Mentor" for
more on mentors.) However, since you will depend much more on a
partner than you would on a mentor, you should choose
carefully!
Have you considered why you really need a partner? Is it moral
support? Is it that you have a big hole in your knowledge or skill
base and need someone to complement your skills? I've started a
business with someone I didn't know, and it didn't work out
very well. The last few that I've started have been with people
I've known and trusted for a long time. You can never be
completely sure if you've selected the right person, but the
better you know them, the more likely you'll make a good
choice.
If you decide you really need a partner, then get as many
personal references as possible, and check them carefully.
Who's the
Founder?
Q: My partner and I
are having a hard time determining the correct usage of the term
"founder." Initially my partner, Jill, and I had a
previous business relationship. Because of this, when Jill
suggested selling gourmet foods through home parties, she called
me. My response was, "I'd invest in that," and I
did.
For two years, the company operated out of a building on my
property, and Jill put in countless hours getting the business off
and running. For four and a half years, I had little involvement
other than some encouragement now and then. At that point, the
business grew to the point that it needed someone like me to play
the role of COO. Until recently, Jill and I titled ourselves
president (Jill) and vice president (me). Because neither title
refers to foundership, we are struggling with correct usage of the
word founder. Is she the founder and I co-founder? Are we both
founders? Are we both co-founders?
A: I would consider you
both co-founders-you both started the company (you with money, her
with time). My advice is not to worry too much about that. If you
are searching for a way to refer to yourselves, I think co-founders
sounds fine. You might also consider
"principal"-that's more of a financial industry term,
but it sounds pretty good and seems to fit here. I wrote an article
on titles that you might find helpful, "The Relevance of Employee
Titles."
Originally published in the July 2002 issue of HomeOfficeMag.com