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HOW TO INCORPORATE

The Art (Not Science) of Picking the Right Partner

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ffith, a lawyer at Waller Lansden Dortch & Davis, in Nashville, remembers the time two men came into his office and announced that they wanted to form a partnership. One was going to be the CEO. The other was to put up the money. "They had a concept," recalls Griffith, "and they were both going to make a million dollars on it."

So Griffith walked them through some rudimentary questions. "Who's going to have control?" he asked. The would-be CEO spoke up first: "I'm running it, so me." But the money man quickly contradicted him: "Well, it's my money." The two finally agreed that a third party would break any impasse.

Griffith moved on to question number two. "If this guy puts up more money," he asked, pointing at the financier, "does he get more control?" Another hot disagreement ensued, during which the money man began gesticulating violently in his swivel chair. The chair broke, sending him tumbling. The partnership fell apart, too. "They had come in expecting a bridal suite," says Griffith, "and 30 minutes later they left with pieces of chair on the ground."

Such is the half-baked thinking behind many a partnership. Says Mardy Grothe, a Bedford, Mass., psychologist who counsels partners, "It's amazing to me that people don't sit down and talk about it." They don't subject their choices to even a modicum of scrutiny, although it's likely they'll spend more time with their partners than with their spouses.

So how does one find the right fit? "Do a little dating," suggests Peter Wylie, a Washington, D.C., psychologist. "Take on a challenge together, like meeting a deadline." Dennis Jaffe, a San Francisco-based consultant, suggests drawing up "a statement of expectations--a charter, a constitution that can be referred to." And not with any lawyers around: "Draw it up yourself, in your own words."

Or simply talk. "Let's sit down and talk about the reservations that are being dimly experienced deep in our gut," Grothe counsels, "that we're almost pushing out of the way because we want to go into this thing with fervor."

He also recommends asking a prospect for permission to talk to someone he or she has partnered with in the past: "If someone says, 'No way,' that would be a bit of a red flag."

But perhaps the most important due diligence to be done, says Grothe, involves yourself. "Get your spouse or your friends to tell you whether you're good partner material," he says--that is, examine your own potential strengths and weaknesses.


Trigger Points

Seven events in a partnership's life that are most likely to destroy it

Partnerships can sour at any time, for any reason. But certain events are common flash points, so don't let them surprise you. Among them:

  • One of the partners divorces
  • The company grows suddenly
  • A partner brings a spouse or relative into the business
  • Because of increased financial needs, a partner wants to take more money out of the business
  • Partner A pinches Partner B's bottom, introducing a new complication to the relationship
  • Partner B has a tragic motocross accident (or other medical misfortune)
  • Then there's good old malfeasance, such as when Partner A begins doing business with customers on the side--"usurping corporate opportunities," lawyers call it--and thus violates his or her fiduciary obligation to Partner B

Last updated: Aug 1, 1998




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