There are lots of great stories about friends who start businesses and have fun while they make money.

What isn’t so well known are the disagreements, disappointments and misunderstandings that can lead to either the business or the friendship biting the dust -sometimes both.

I was asked by Harry Wallop, FT Journalist for a comment on an article he was writing for the Work Smarter column. This is my answer in more detail:

When you go into business with other people, the more you know exactly what to expect of each other the more likely it is that the friendship – and the business – will survive.

If you’re starting a limited company (recommended when you’re going into business with other people), when you register it at Companies House you’ll get the  Articles of Association. These contain the purpose of the company as well as the duties and responsibilities of its members, but they only go so far.

Designing a partnership charter gives all ‘partners’ the opportunity to discuss lots of possible scenarios and how they will be dealt with – in good times and bad – and sets out everything in a document that will help, even when unexpected things happen further down the line.

(In this context ‘partners’ refers to owners and stakeholders, regardless of the legal structure.)

The starting point should be a feeling between the partners that they would like to deal with each other in a fair and honest manner and that is the guiding value of a Partnership Charter.

What is a Partnership Charter?

The contents of the charter are usually discussed and drawn up during a process  that allows you to establish simple things such as which roles the business requires and who is best qualified to fill those roles and to consider various potential scenarios and how the partners wish to handle those issues.

A charter can be created when selecting partners for a new venture or after people have worked together for years, but its best to do it before problems arise.

Some elements included in Partnership Charters can be found in partnership or shareholders agreements. However, the Charter covers these areas in much greater depth – for example not only who has which title but what they really mean.

Other elements, such as expectations and fairness, are not touched upon in a shareholder agreement but can be crucial to a business’s ultimate success.

Typically the charter will be established during a day’s workshop and some of the items discussed during the process are:

Do you have the same goals?
Do you have different skills?
Do you have the same work ethic?
Do you have similar personal values (honesty, loyalty, trustworthiness, etc.)?

What will each of you contribute to the business?
How will each contribution be measured and valued?
How will each of you be rewarded?
What happens if …
The business is wildly successful?
The business fails?
One of you doesn’t reach their goals?
One of you gets ill?
One of you wants out?
One of you wants somebody else out – or in?

There are lots of other topics that can be included that come about as a result of the discussions that the questions generate.

If you’d like some more information on how to avoid problems when going into business with friends or family, just ask me!