Starting a business with a friend, family member or partner: pros, risks and rules

What are the pros and cons of co-founding with someone close?

A friend or relative gives you what a stranger takes months to build: trust, a sense of how the other person behaves under pressure and a genuine wish to succeed together. These strengths often make the early days faster and more united.

The downside is that the personal relationship can stop you from saying what needs to be said. People hesitate to criticise a friend’s work, ask a brother for more commitment or talk money with their partner, and unspoken issues pile up.

Is your friend the right co-founder for this project?

The most common mistake is choosing someone because they are available and you like them. Assess them with the same criteria you would apply to a stranger met on a platform, as explained in our guide on how to find a business partner.

• ✓Their skills cover a real need of the project and do not duplicate yours.
• ✓They share your level of ambition and your time horizon.
• ✓Their personal situation lets them commit the time you expect.
• ✓You have already seen how they react to disagreement or failure.
• ✓You could say no to them, or tell them their work is not good enough.

If several boxes stay empty, a time-limited collaboration is better than committing straight away. Our guide to the co-founder trial period explains how to set one up.

Which conversations should you have before committing?

Between people who are close, the risk is not a lack of questions but avoiding them out of awkwardness. A few topics specific to personal relationships deserve a calm, frank discussion.

• Priorities in a conflict: if the business and the friendship pull in opposite directions, which one do you protect first?
• Household money: how much each of you can lose without putting your family in difficulty, and what each partner at home thinks.
• Decision rights: who has the final say in each area, even if one of you is older, had the idea or is closer to everyone else.
• Other people close to you: how to stop parents, mutual friends or children from becoming referees.
• The exit: what happens if one of you wants to leave, stops pulling their weight or the couple separates.

Which rules should you write down to protect the friendship and the company?

The golden rule is simple: the closer the relationship, the more the written word matters, because it saves you from negotiating in the heat of the moment what could have been agreed calmly.

1. 1Split the equity according to contributions and future commitment, not affection, using our guide to equity split.
2. 2Write down each person’s role and decision areas.
3. 3Use vesting so that shares are earned over the time spent on the project.
4. 4Draft a shareholders’ agreement with clauses on leaving, buy-back and resolving disagreements.
5. 5Hold a regular meeting about the partnership itself, separate from operational meetings.

Couples face additional questions, such as how their marriage or civil partnership arrangements treat the shares, the status of a partner working in the business and what happens to the shares after a separation. The rules depend on the country, so ask a lawyer or notary about your situation.

What should you do if the partnership goes wrong?

The first signs are often subtle: topics you no longer raise, tasks you quietly redo, friends and family you complain to instead of talking to your co-founder.

• Separate the two relationships: discuss the business in a professional setting, based on facts, and keep time together that has nothing to do with work.
• Go back to the written rules before trying to decide who is right.
• Bring in a neutral third party, such as a mediator or adviser, rather than a mutual friend or a relative.
• Accept that an orderly exit is better than a partnership that destroys the relationship.

Our guide to co-founder conflict sets out the steps to defuse a disagreement, use mediation and organise a co-founder’s departure.