Choosing a co-founder: questions to settle before you start

Start by asking whether you need a partner at all. What can you not do alone: build the product, sell, run operations, bring in money? Could you hire someone, outsource it or contract it instead? Are you looking for a partner or for company? Partners share the work, but they also share control, profit and decisions, and a business that could have been run alone may be harder to run with a partner who disagrees. Be clear about what you are willing to share before you ask anyone.

If you decide you do need one, write down what you need from them. Skills that complement yours are more useful than skills that copy them. Contacts or customers you do not have may matter more than another pair of hands. If money is to be put in, how much and by when? How much time: full-time from the start, part-time, or from a future date? Then ask whether you have seen them work. If possible, do something small together first. A short project shows more about how a person handles deadlines, disagreement and pressure than years of friendship.

Then ask the uncomfortable questions, all of them, before there is a business to argue over. How much money can each of us afford to lose? What does each need to earn, and from when? What happens if one of us gets a job offer, falls ill, or has to move for family reasons? How do we feel about borrowing money or bringing in investors? What does each of us want this business to be in five years: a steady living, something to sell, something large? Different answers are not a reason to stop, but they are a reason to know before you start.

Agree roles and decisions. Give each area a clear owner: customers, money, operations, the product. Decide which choices need both of you and which do not. Decide what happens when you disagree, with a process, such as bringing in a trusted third person, and not just hope. Think about titles and what they signal to customers and staff. And agree to meet regularly to review how it is going, including how you are working together, not only the numbers.

Talk about money and ownership directly. Many partnerships divide ownership equally because it avoids an awkward discussion. That can be fair, and it can also be the first thing people regret, particularly if one partner puts in more money, more time or more of the idea. Ask an adviser to explain the options for your structure, including whether ownership can be earned over time rather than fixed on the first day. Settle who contributes what in cash, work or assets and how each is valued, when salaries or drawings begin, and whether profits are paid out or put back.

Write it down. The kind of document depends on your structure: a partnership deed, an LLP agreement or a shareholders' agreement. It should cover roles, time commitments and decision rights; ownership and contributions, and what happens if one is not made; how a partner can leave, how their share is valued and how it is paid; and what happens in a deadlock or on the death or incapacity of a partner. Have a lawyer draft or review it. A template from the internet may not fit your structure, your state or your situation, and an agreement that does not hold up when tested is little better than none.

Be careful with relatives and close friends. The closeness can help with trust and hurt with honesty. Be especially clear about roles, because family members who join informally often have no defined job, no defined pay and no way to be told that something is not working. The more personal the relationship, the more useful the written agreement is, because it lets you disagree about the business without disagreeing about each other.

Finally, plan for the part nobody wants to plan for. Know the signs that expectations have drifted apart: unequal effort, unspoken resentment, decisions made without telling the other. Raise it early, with an agenda, and not in the middle of a quarrel. Agree in advance how one partner can buy out the other and how a fair price would be worked out, and what closing the business cleanly would involve, including customers and money owed.

None of this guarantees that a partnership will work. It does mean that when something goes wrong, you have already had the conversation once, and you have something written to return to. It is far easier to have the awkward talk while there is still nothing to argue over.