Choose Partners carefully

Watch for Payments to other People
Where payments are made by partnership to other people, such as relatives, or those associated with a partner, then that payment is generally tax deductible to the business. The Tax Department, however, may disallow the deduction for that payment if it considers that it is an unreasonable payment and not made “at arms length” - that is, it is not proper and therefore not a correct payment for actual services rendered. If the amounts are disallowed, they are added back to the profit of the partnership.

Some persons who could be considered in this area include:

  1. All relatives of the partners.
  2. A shareholder or director (who is not a partner) of a private company where the latter person is a partner.
  3. A beneficiary (not a partner) in a trust estate where the latter is a partner.

Avoid Partnership Pitfalls
Before you decide to jump into a partnership with others, think about a few things:

  1. Investigate whether other partnerships you know of have been successful.

  2. Do some homework. Find out about your strengths and weaknesses. Check out where the resources are not present and need outside expertise. In other words, do your homework.

  3. Be careful of associates and relatives. Your partners should be selected based on the criteria such as; their reputation, financial stability and expertise. Be careful of bringing in friends and family.

Check Your Potential Partners
Here are some things to look at and identify whether the potential partner you have in mind will suit your business.

  1. Do they have the same interests in the type of business you are in?
  2. Do they have the same culture, values and ethics as you?
  3. Have they been in partnership before? How did that work out?
  4. Are they happy with a written partnership agreement, rather than keeping things verbal?
  5. Are they comfortable with offering information about their client base and network, so you can see if what they are offering fits?
  6. Do they have any alliances or relationships they can bring into the business to benefit the partnership?
  7. Will they be committed to the business?
  8. Do they have a good name?
  9. Is their reputation good in the market?
  10. Are they enthusiastic about working?
  11. Are they happy to set strategies in place to handle disputes?
  12. Will they be happy to put in an exit strategy in case things don't work out and there is a parting of the ways?