Carlos Costa is familiar with the horror story: Two people join forces to make their fortunes, or at least be their own bosses, but something happens and the partnership is rent asunder.
"I know a lot of partners out there, they hate each other," said Mr. Costa. He has no such feelings for Tim Mulya, with whom he established a small, flavoured-water company near Toronto four years ago.
Like newlyweds, the last thing entrepreneurs want to think about when starting up a small-business partnership is divorce.
And just as couples may sign a prenuptial agreement in case of future separation, so, too, business people are courting heartache -- if not financial disaster -- if they don't sign a partnership accord, advocates for entrepreneurs say.
"Assumptions can be dangerous things -- unless you have them written down," said Gordon Wusyk, president and chief executive officer of Edmonton-based business consultancy Predictable Futures Inc. "Each person in the partnership needs to know where the buck stops, and where their area of accountability starts and stops."
Andrew Patricio, a partner with Toronto-based Bizlaunch, which provides training for small-business people, is more blunt about it: "Ideally, before starting up a business, entrepreneurs should meet up with their respective lawyers and plan for the divorce. A good agreement is vital."
Mr. Patricio has first-hand experience of what can happen without an agreement. He and four partners, including family members, began a restaurant-supply business in the early 1990s. They had a verbal agreement on how they would share the profits. The business grew quickly and became an acquisition target, but the parties couldn't agree on how to share the proceeds.
"I had to eventually sue my partners for my share of the business, which was $400,000. They took three years to pay me . . . If I had spent the money on an agreement rather than trusting my partners' word, I would be much better off today."
Messrs. Costa and Mulya forged their partnership agreement when they began their venture. Ice Down Beverages Inc. produces bottled water in eight flavours as well as an oxygenated brand.
"A partnership is very helpful. If one person is sick or has to go out of the country, at least you know you have someone," Mr. Costa said. But just as important, "you have to know who's going to be your partner. I'm lucky, I've got a very good relationship."
He concedes that given the healthy relations with Mr. Mulya, an agreement in writing would seem unnecessary, but said it wasn't so much for them as for banking and legal requirements. "When we sign cheques, we need only one signature -- he or myself can sign."
Albert Luk, a Toronto "entrepreneur friendly" lawyer, said that some people can be reluctant to negotiate a partnership agreement.
It can be "penny wise, pound foolish," he said -- starry-eyed entrepreneurs are loath to pay for an agreement, even though the litigation that can follow an unhappy breakup can be double or triple that upfront cost.
In the Toronto area, partnership or shareholders' agreements can cost anywhere from $1,000 to $10,000, Mr. Luk said, depending on the complexities, such as whether venture capitalists or outside investors are involved in the enterprise.
As well, he said, people are reluctant to broach the negative possibilities associated with these agreements -- what happens if the parties have a falling-out, or if one of the party's marriage collapses, or if one of them becomes disabled, or dies, or if the business flounders.
"It's about what happens when things go wrong and, obviously, that's against human nature," Mr. Luk said. "When you're entering into a business, people are going to think this is going to be a success and they are going to enjoy themselves."
