The recent layoffs at McCann Relationship LLC in Detroit, where over 120 advertising professionals were reportedly affected following GM’s advertising budget reallocation, highlight an important reality in the creative industry: change is constant, and agency professionals need to be prepared for unexpected transitions. For many creatives, such moments can become catalysts for starting their own ventures.
As you consider launching your own creative agency – whether due to corporate restructuring or simply pursuing entrepreneurial ambitions – you’re likely thinking about the initial challenges: securing clients, establishing operations, and building your brand. However, equally important is planning for your agency’s future evolution, including the possibility of taking on a business partner. While partnership can accelerate growth and expand capabilities, it requires careful forethought about how that relationship might eventually end.
Before You Say ‘I Do’ to a Business Partner
Taking on a business partner is one of the most significant decisions you’ll make as an agency owner. The decision has the potential to accelerate growth, but also carries risks.
Before diving in, take a step back and examine your motivations. Are you seeking capital for expansion? Looking for someone to handle business operations while you focus on creative work? Or perhaps you need specific expertise in an area like client acquisition? Understanding your true needs will help you evaluate whether a partnership is really the best solution.
Indeed, many of these needs could potentially be met through less permanent arrangements. A key employee with profit-sharing incentives might provide the leadership you need. A coach or consultant could offer strategic guidance. And a bank loan or outside investor might supply necessary capital without requiring you to share control and equity in the business.
If you’ve determined that a partnership is indeed the right move, develop a thorough vetting process. Beyond assessing their skills and financial resources, evaluate their vision for the agency’s future, work ethic, and problem-solving style. Pay special attention to how they handle difficult conversations – you’ll be having plenty of these as business partners. Ask pointed questions about their long-term goals, financial expectations, and how they envision the division of responsibilities. Be thorough and take your time—you’re choosing someone who will have significant influence over your professional life and financial future.
Key Legal Structures to Consider
If you decide to move forward with a business partner, the way you structure your partnership will shape how your business operates, grows, and ultimately transitions when the time comes. For creative agencies, a Limited Liability Company (LLC) or corporation typically makes the most sense, offering flexibility in management structure while protecting personal assets. Within these frameworks, you have considerable autonomy in designing ownership arrangements that match your goals.
Consider carefully how you allocate your ownership stake. While a 50-50 split might seem “fair,” it can lead to deadlock in decision-making. Many successful partnerships opt for a controlling interest structure (like 51-49) or create different classes of ownership with varying voting rights. The key is creating a structure that reflects each partner’s contributions and responsibilities while establishing clear lines of authority.
Keep in mind that your partnership structure will have tax implications. While your tax professional can guide you through the specifics, generally speaking, LLCs offer flexibility in how business income is taxed, while corporations might provide advantages for future sale or expansion plans. These decisions shouldn’t be made in isolation—your choice of structure should align with both your immediate operational needs and your long-term exit strategy, so make sure to get advice on these and other issues from experienced legal counsel.
Planning for the Exit
It might seem counterintuitive to plan for the end of your partnership before it even begins, but this foresight is crucial for protecting both parties’ interests. A well-crafted exit strategy isn’t just about worst-case scenarios – it’s about creating clear pathways for natural business transitions, whether that’s retirement, pursuit of new opportunities, or a lucrative buyout offer.
An important aspect of exit planning is a solid buy-sell agreement—think of this as a “business prenup.” This document should outline exactly what happens when one partner wants to leave, becomes disabled, retires, or passes away. Key elements include how the business will be valued (whether through a predetermined formula, agreed-upon metrics, or independent appraisal), and how the departing partner’s share will be purchased. Will there be a right of first refusal for the remaining partner? Can shares be sold to outside parties? These questions need clear answers from day one.
Equally important is planning how to fund these transitions. A retiring partner’s buyout might be structured as a lump sum, installment payments, or a combination of both. Life insurance policies can provide funds for unexpected scenarios, while carefully structured retirement buyouts might be funded through the business’s future earnings. The goal is to create a framework that’s fair to the departing partner while ensuring the business remains financially viable for those who continue.
Protecting Your Interests
The operating agreement is your partnership’s governing document – it should be comprehensive, clear, and carefully tailored to your agency’s specific needs. Beyond basic ownership percentages and management responsibilities, this document needs to address the unique aspects of running a creative business. Who owns the relationships with key clients? How are creative assets and intellectual property handled if a partner departs? What decisions require unanimous agreement versus a simple majority?
Pay special attention to provisions that protect your agency’s most valuable assets. In creative businesses, these often extend beyond tangible property to include client relationships, creative processes, and trade secrets. Your agreement should include robust confidentiality provisions and carefully crafted non-compete clauses that can withstand legal scrutiny. Consider including terms that define how client accounts are handled during and after a partnership transition – for instance, whether departing partners can solicit existing clients and under what conditions.
Decision-making authority should be clearly defined for both major and routine decisions. While day-to-day operations might be delegated to individual partners based on their roles, establish clear protocols for significant decisions like taking on major debt, hiring key personnel, or changing the agency’s strategic direction. In short, the operating agreement should provide a clear framework that prevents misunderstandings and protects both partners’ interests while allowing the business to operate efficiently.
When Things Go Wrong
Even the best partnerships can face serious challenges. Your operating agreement should include clear mechanisms for resolving disputes before they escalate into costly legal battles. Consider a tiered approach to conflict resolution: starting with structured partner discussions, moving to mediation if needed, and litigation only as a last resort. Also Include specific provisions for breaking deadlocks in decision-making, such as alternating final authority between partners on different issues, or establishing a buyout process that triggers when partners reach an impasse on major decisions.
But what if the relationship becomes truly irreconcilable? Your agreement should include clear procedures for forcing a buyout when necessary. One approach is the “shotgun” clause, where one partner can name a price at which they’ll either buy out or sell to the other partner. While these provisions may never be used, their mere presence often encourages partners to find workable solutions to their differences.
Conclusion
The best partnerships aren’t built on optimistic assumptions about permanent harmony, but on mutual respect, clear communication, and well-defined agreements that protect everyone’s interests. By thinking through and planning for various scenarios from the start, you’re not being pessimistic—you’re being pragmatic and responsible. This foundation of careful planning will give you and your potential partner the confidence to focus on what matters most: growing a successful agency together.
