Why a partnership starts with people, not with the idea
I see a lot of people out there starting businesses with contagious enthusiasm. Someone has an idea that seems brilliant, builds a few Excel spreadsheets that accept any growth projection and quickly invites a friend or acquaintance to join the adventure. The excitement to execute the plan is so intense that agreements remain purely informal. They go to the accountant, sign the Articles of Incorporation and that is it. The company is born. But what most people fail to notice is that they reversed the natural order of things. And reversing that order is extremely dangerous.
Before the idea, a partnership is made of people. Whether individuals or legal entities, the essence of any business lies in who stands behind it. The central question before starting a partnership should not be the product or the service, but rather: who do I want to go into business with? Only after answering that, with complete clarity and honesty, should one ask what we are going to do together.
Many partnerships begin with informal agreements because the parties believe they know each other well enough. But do they really? Do they know what to expect from each other in the day-to-day reality of the business? How each person reacts under pressure, in times of financial shortage or, ironically, in times of financial abundance? Many promising businesses and brilliant ideas collapse not for lack of market, but because of poorly resolved partnership issues.
My father always said that a deal agreed upon costs nothing. And he was absolutely right. The thing is, the era of closing deals on a handshake no longer exists in practice. The market is complex, the variables are many and human memory is convenient. What truly works is the formal agreement. It is the moment of sitting down at the table and discussing all the difficult subjects, leaving absolutely nothing swept under the rug.
This is where the Shareholders Agreement comes in. The Articles of Incorporation are merely the birth certificate of the business. They state who the parents are, where the child lives and what its name is. But it is the Shareholders Agreement that teaches how to raise the child and, most importantly, how to act when the parents decide to separate. Many business owners neglect this document because they think it is just bureaucratic paperwork. Nonsense. Pure and simple nonsense. The Shareholders Agreement is the minimum control necessary to ensure that the company survives its own founders.
Think about it. What happens when one of the partners decides they no longer want to work long hours and wants to sell their stake? Or worse, what happens when a partner passes away and their family shows up at the company's door demanding dividends or wanting to weigh in on management without understanding anything about the market? Without clear rules, what was a promising business turns into a judicial battleground.
One of the biggest headaches I witness in the market happens at the moment a partner exits. The dispute is classic. The one who leaves thinks the company is worth tens of millions because of its future potential. The one who stays thinks the company is worth almost nothing because they only see the debts and the work ahead. How do you resolve this? With a pre-defined valuation rule. The valuation process should not be a surprise. The Shareholders Agreement must specify how the company will be assessed. When you define the rules of the game before the game heats up, you take emotion off the table.
Another point that tends to destroy value is succession. The transition between generations is the true Achilles heel of family businesses. Inheriting assets is a right, but inheriting the management seat is a competency that must be proven. The Shareholders Agreement, often complemented by a family protocol, shields the company's operations from the confusion of estate proceedings. It determines who may hold executive positions and how ownership interests will be handled in the event of a partner's death.
Every partnership is built on a non-negotiable foundation: trust. Without it, no business gets off the ground. However, trust is a human feeling and, as such, is subject to the wear of time. That partner who started with you in a garage at home, full of dreams and with the same spark in their eyes, will not be the same person ten years from now. They will have lived other experiences, faced personal crises, changed their standard of living and received influences that will inevitably shape their understanding of everything you built together.
It is precisely for those moments that the Shareholders Agreement becomes very necessary. It does not exist because you distrust each other today, but because you recognize that the future is uncertain and that the trust you have placed in one another needs to be well supported. The document serves to bring rationality to partnership relations when emotion tries to take control. It acts as a physical and legal reminder of what you agreed upon back in the past, when the sky was blue and intentions were pure. If, over the years, something in the agreement no longer reflects the current thinking and understanding of the partners, the solution is mature and straightforward: sit down at the table and amend the agreement. What cannot be done is to invalidate or ignore it simply because you no longer agree with it.
International academic literature confirms this view. In studies conducted by Harvard Business School on founders' agreements, researchers point out that the process of creating and reviewing these documents brings clarity and commitment to the team, making it possible to anticipate conflicts before they bleed the business dry. Similarly, best practices from business schools such as Wharton emphasize that early governance does not stifle innovation, but creates the safe boundaries within which it can happen and within which trust does not turn into litigation.
To understand the weight of this, one only needs to look at the innovation ecosystem. Imagine a technology company that started in a cramped apartment and, after years of accelerated traction, became a unicorn valued at more than one billion dollars. Today, that same company bleeds across the headlines of financial newspapers. The reason? A painful dispute involving one of the founders and a vacuum in the definition of succession. They even had a shareholders agreement, but it was a drawer document, generic. Vital clauses, such as the exact valuation process for a founder's exit and the succession rules in the event of a departure, were not clear. The result is a billion-dollar operation paralyzed, losing market value daily for lack of clear rules that should have been written when the company was worth nothing. Real and well-known cases of startups that reached billion-dollar valuations and then collapsed in power disputes show that the market does not forgive a lack of governance.
Brazilian courts have increasingly valued private autonomy. The message is clear. What you agree upon consciously and put in writing in the Shareholders Agreement carries the force of law. The cost of not having this agreement is the judicialization of conflicts that could have been avoided.
At the end of the day, governance is action. Having a Shareholders Agreement does not mean you distrust your business partner. On the contrary. It means you respect the relationship you are building enough to protect it from yourselves. A partnership starts with people. And if people respect each other, they put everything in writing.
Article originally published on GazzConecta.
