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It can be a huge task bringing a new partner into a small business.  This often deters small businesses from offering partnerships to their best employees.

Here are just some issues with setting up a traditional partnership :

There is usually the financial cost to the new partner entering an established business. 

You must consider how much does the partner pay for a share in an established business? Who places a value on existing stock and valuables?
 
In most small businesses there is the expense of an office and / or storage space for stock and equipment supplied by the principal shareholder in their own home.  How do you value these assets?

What allowance is made for goodwill in the business? Some may say: why do all the hard work setting up a business and then give part of it away?

What about the overdraft and other existing liabilities? How much should the new partner contribute towards the share of the pre-paid insurances and Licence fees? Do you also need to engage (and pay for) an independent valuer? What about the book balance, overdue debts and account balances?

Of course there is paperwork involved in notifying the relevant licensing bodies related to the existing business, notifying the banks, the tax office, insurance companies, ASIC and the list goes on.

All of this time and mental energy of setting it up pulls you back from running your core business. You may wonder why you should even bother with a traditional partnership!  Especially when there’s the possibility that the partner could want to exit the partnership six months down the track? Not to mention the endless and costly discussions with your accountants, the back and forth discussions with the solicitors. It's all time and money.

You need to keep in mind that during the traditional process, the accountants and solicitors may need to  make each partner aware of the pitfalls setting up a traditional partnership.

This process could convince you or your employee not to proceed with a partnership or, at the least, create some negativity, which can raise doubts in either party.

By this stage it’s likely that the interest from either party has waned as a spouse or friend has been in the employee’s ear warning them about this or that, losing sight of the original intention that you trust this person, you assume they trust you and both of you want this great individual to play a long term position in your organisation.

If the partner in a traditional partnership were to leave you’d at the very least have to go back and go through the entire notification process again to get back to where you started. If the partnership dissolution is acrimonious, you could also be entwined in a legal dispute.

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In many businesses there’s also the liability factor whereby it’s possible for a partner to become liable, or if not at the least be drawn into the costs of legal fees and down time dealing with Company issues prior to the new partner getting involved with the Company.

With your typical partnership, there are also the dramas with legal responsibility for mistakes made by the partner who has left the organisation even though the partner enjoyed the profits during their stay.

With your typical partnership, there’s the enormous task of working things out with the general running of the business and coming to agree on such matters as who does what, where and when, how much for this, that and the other. Then, to have this reflected in a legal agreement. It’s all too hard!

There are also the holiday issues, the sick days and so on. What happens when one of the partners, new or old, becomes permanently ill or incapacitated and will not be able to contribute their skills to the company? Does that partner and/or spouse receive lifetime company dividends? What if a partner takes 3 months off for an extended holiday? How much of the share of the profits does he take? As you can see, it can get very messy. Unless all partners can agree, the business could collapse.

On top of that there’s the legal requirement of mandatory annual general meetings, notes have to be taken, records kept, company audits and annual reporting. With additional stakeholders to deal with, this can cost loads of time and money.

There’s no wonder that with the traditional partnership system that there is too much red tape to bring in new partners.  It’s a dinosaur!

Our program makes setting up a legal agreement with your employee a simple and quick process. You can set up your employee's agreement in less than 5 minutes. Our online system also makes tracking rewards and due payments on a monthly or quarterly basis easy. Both the employer and employee can log into their account at any time and view their statement.

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Do you want to keep your best ?

The reality is that valued employees need to be given a sense  of ownership of the company and rewards based on their efforts to increase the chance of them staying on.

This fantastic program will help you retain great staff, whilst still remaining in full control of the business that you have built.