Legal Brief for May, 2010

How Well Do You Know Your Business Partner?    

Going into business with someone is a major step in a person's life.  You may have had a dream of starting your own business for many years, and finally the time has come when you can step towards achieving that goal.  Perhaps you are in need of some extra financing, so you find that a friend at work or from your rec hockey league is interested in joining your venture.  You quickly decide to set things up on a 50/50 basis, and off you go, full of hope and ambition.  

There are many aspects to starting and operating a business, and if you are planning on doing so with a partner, it is vitally important that you know something about your partner other than he's a great guy to have a beer with after the game is over.  You may be called upon in your business to provide personal guarantees for a bank loan, to co-sign credit applications, to submit sworn statutory declarations to government licencing authorities, to file income tax returns, and a myriad of other steps.  You may be able and willing to sign on the dotted line for all of these things, but is your partner?  

What if in fact your trusty partner has a number of creditors suing him from a previous failed business venture?  Or if he has several court judgments against him that are outstanding?  Or maybe he is in the middle of a personal bankruptcy proceeding that he "forgot" to mention to you.  Any of these situations could compromise your ability to carry on with your business, and in fact increase the chances of your dream turning very quickly into a failure.  

It is human nature to gloss over our misdeeds, past or present, or not to mention them at all.  Therefore it is important that you do your own due diligence on anyone that you plan to go into business with.  It is an easy matter for a lawyer to do a number of court and property searches at minimal cost that will reveal whether your partner has any skeletons in the closet that he or she may have neglected to tell you about.  The old saying, "an ounce of prevention is worth a pound of cure" is never more true than in a situation like this.  Before you get too far ahead with your business plans, make sure you do some discreet investigations of your own on your potential partners.  Better safe than sorry!