Starting a Business with a Friend Without Registering It: What You Need to Agree

Agreeing to do business together already makes you partners

Doing business together without registering is possible in the form known as an unregistered ordinary partnership. It comes into being the moment you agree to put in capital and run a business together to share the profit, and even if you never wrote anything down, you are already partners in the eyes of the law.

The problem is that when nothing is written down, every term falls back on what the law provides, which may not be what you both really want. You may think the profit is split half and half while the law splits it in proportion to what each person put in, or you may think money is spent only after consulting each other while the law lets each partner manage the business.

Capital, profit share, and management: what the law fills in if you do not agree

Three basic points to know before you start a business together:

1. You can contribute money, property, or labour, but property and labour need an agreed valuation. Otherwise you end up arguing later about what each person's effort is worth.
2. If you do not agree on the profit share, the law divides it in proportion to what each partner put in, which is not always half and half.
3. If you do not agree on management, every partner has the right to manage the business. That means either partner can take on debts in the shop's name without the other's agreement.

These three points are exactly why you should write your own terms at the start rather than leave things to the law's defaults.

The most important point: partners are liable for debts without limit

The most important thing to know before you decide is that every partner is jointly liable for the business's debts without limit. In plain terms, your personal assets can be reached to pay the business's debts too, not just the money you put in.

This links back to management powers. If one partner takes on a debt in the shop's name, that becomes a debt of the business for which all partners are liable together. If you do not want to carry this risk, the way out is to register a limited company. A limited partnership still needs at least one partner with unlimited liability.

What to agree in writing from day one

A clearly written partnership agreement cuts down on later arguments. It should cover at least the following.

1. Details of every partner, and the name, nature, and location of the business.
2. What each partner contributes, whether money, property, or labour, with the agreed valuation.
3. The profit share, and how any loss will be borne.
4. Management: who orders stock, who can withdraw from the account, and which decisions need both partners' consent.
5. How a partner can withdraw, and how the withdrawing partner's share is valued.
6. What happens if a partner dies, and how the share is valued and paid back to the heirs if the other partner is to carry on.

The key is to put the profit share, who may spend money, and which decisions need both partners' consent into a written agreement. Do not leave them as an unwritten shared understanding.

Plan for the end on day one, and a word on tax

The thing people least want to discuss when starting a business is the day they part ways, yet it is exactly what should be settled before the relationship sours. That covers a partner asking to withdraw and a partner dying. Under the law, a partnership of two people ends immediately when one of them dies.

If you want the surviving partner to be able to carry on the business, you need to write down in advance how the share is valued and paid back to the heirs.

The last point is tax. An unregistered ordinary partnership is a separate tax unit and must file tax in the partnership's own name, so it is worth getting an accountant's advice as well.

Common mistakes when doing business with a friend

Trust between friends is a good starting point for a business, but it should not be the only thing holding the arrangement together. These are the common mistakes.

1. Agreeing orally to split half and half, without knowing the law divides by the amount put in.
2. Not valuing the labour or property contributed, which leads to arguments about who put in what.
3. Not setting who may spend money, so one partner can take cash from the account or take on debts in the shop's name without the other knowing.
4. Not planning for the day you part ways, whether by withdrawal or by a partner's death.
5. Not realising everyone is liable for the business's debts without limit until a debt has already arisen.

Nearly all of them are avoided by sitting down and writing the agreement out before the first money goes in.

Making a partnership agreement on Kontrax

The partnership template on Kontrax is drafted by lawyers and lets you settle all the points above in one document, from capital contributions and profit share to management powers and the way out on the day you part. Both sides sign online with an SMS one-time code and keep the signed PDF, and if you want to change the terms later you can record that as an amendment (สัญญาแก้ไขเพิ่มเติม).

The contract does not make the unlimited liability for the business's debts go away. If you do not want that risk, consider registering a limited company. A limited partnership still needs at least one partner with unlimited liability. You can sign up and make your first contract free, with no credit card.

Frequently asked questions