I want to be clear that there is no universally correct answer to this question. If you have a blog and Bill Gates wants to invest $500 million in it, I’m going to go out on a limb and suggest the partnership might be in your best interest. On the other hand, there are plenty of situations where bringing another party on makes little sense.
What benefits will you actually receive from forming the partnership? Pull out a pen and paper. Make a list. Of the benefits you list, which ones have the potential partner actually accomplished? Do your due diligence. Don’t just listen to what they tell you.
I have to be honest. I don’t care for partnerships. A partnership is essentially a marriage. Getting into them is easy. Getting out is expensive and painful.
A better alternative for most online businesses is to form an alliance agreement with the person being considered as a partner. With this approach, the parties agree to pursue a particular project without compromising their existing businesses. This strategy lowers the risk associated with the project without adversely impacting the profit potential.
In certain situations, it also makes sense to form a stand-alone business entity for the pursuit of the project. Why? If the project involves a field or action where there is a significant risk, the business entity can act as a shield between your already established enterprises and the liabilities and debts created in the project. Confusing? An example can help:
Assume Bob owns a successful blog followed by hundreds of thousands of readers. John is a programmer. They want to develop a new project in which they use a very advanced site to teach marketing concepts to members who pay a monthly fee. This deal represents a pretty standard business model online.
Neither Bob nor John wants to expose their already successful businesses. Still, they need a business entity to shield the venture. The answer is to form an LLC owned by their already existing entities. If the new venture runs into problems, the newly formed LLC will take the brunt of the punishment.
Should you take on a partner? While I am not a fan of partnerships, the decision is one that must be made on a case-by-case basis. Even if a partnership seems to be the way to go, the alternative approaches mentioned in this post may represent a better option.
Richard A. Chapo, Esq.