Business partnerships are often stronger than solo acts because "two (or more) heads are better than one". The theory is that they bring diverse strengths to the table and achieve more through collaborative decision-making.
However, the reality is that they are also at risk of having serious disagreements, personal and/or professional.
To minimise this risk, partnerships can set themselves up for success from the start by having their own partnership agreement. Sometimes people are inclined to avoid the cost of having a formal agreement by having nothing in writing or trying to prepare one on their own.
However, because each business is unique you should not just use a pre-existing template (especially if it is a free one from "www", which will probably not be suitable for New Zealand law).
Instead, you should at least take the conventional approach of going to a lawyer to clearly document your arrangements and to give you advice. To minimise this risk even further, before you document the arrangements, you could use an independent facilitator to make sure that all potential partners are engaged in robust, in-depth discussions in a collaborative way.
This step can ensure there is even bargaining power, for example if a new partner is coming into an existing business. It can also help you to broach difficult topics, such as what will happen if one partner wants to leave the partnership or one of you passes away.
Perhaps more importantly, this step will help you form a psychological contract, as well as a legal contract. This is recommended to create trust between partners and an understanding of what drives them at a personal level. Often personal issues lie underneath visible business problems and they are what cause partners to dislike, distrust, then even hate each other.
Here is an example: a shared interest in computers was the catalyst for two men to begin a software start-up as a partnership. The business survived a tough start during Covid, got two rounds of venture financing, and recently appeared to finally be making progress towards sustainable growth.
But by 2024, partnership was an inaccurate way of describing their relationship. They fought often, especially over questions of contribution and control.
A wife of one partner asked her husband, "Why do you have to do all the real mahi if this partnership is 50:50?"
The other partner’s mother asked him, "Why do you let your partner push you around as if he is the boss?"
They were in danger of permanently falling out, causing the business to fold.
It was rescued when an outsider helped the first partner see that he was giving more than his fair share of effort. The outsider then helped him to raise this sensitive topic with the second partner.
The second partner recognised that his personal life was now taking priority due to his young family and that he was no longer keen to contribute an equal amount of effort to the partnership. He resigned amicably after the outsider helped them work through their problems and the two men remain respectful participants in the same local industry.
You can minimise the risk of stories like this happening to you by appointing an independent chairperson or having an adviser who is involved solely for the purpose of the partnership, not as an adviser for any one partner in a separate capacity.
In times of disagreements, it can be very hard for the one accountant or lawyer to navigate the conflicting interests of each individual partner and the partnership as a business.
To make the most of such an outsider, you need to talk to them early before disagreements escalate. Using the example discussed, it would have perhaps been best for the partners to have met regularly with the outsider to check in. They could have negotiated an arrangement which involved the second partner becoming, say, a 25% partner.
If despite these steps, you end up in a disagreement, it will be more productive to set aside sufficient time to have a collaborative discussion to try to resolve your differences before giving up and going to your lawyers. Attempting to address problems while you are knee-deep in work can be distracting and add to stress.
To give you flexibility and the ability to determine a process that will best suit the circumstances before you, your partnership agreement should contain a dispute resolution plan that allows you to negotiate first, then go to mediation and/or arbitration.
Disputes with business partners can be about non-legal topics, such as how to manage your team or how to negotiate with a new distributor. No matter what the dispute is about, your best bet at resolving it without escalation is by trying to focus on finding a consensus with your business goals in mind. There are no points for winning an argument or debate with your partner and no reward for being right.
It is highly likely that an independent mediator can help you maintain a focus on the possible solutions rather than the problem, and the earlier you involve them the better, before people get stuck in their own positions. They will help by enabling all partners to present their positions and viewpoints in a constructive manner and making sure that the discussions remain focused on a common goal of preserving the business in a way that will benefit everyone. If no resolution is possible, the mediator will encourage the partners to end the partnership in a non-adversarial or amicable manner in order to avoid going to court.
This discussion is not intended to discourage you from going into a partnership, rather it is about highlighting risks that people don’t always think about unless they have learnt the hard way. Being in business by myself, the only conflict I have is with the little voice inside my head. Mediating with that is a topic for another column.
— Kate Keddell is director of Balance Consultancy.
