Business Partner vs Co-Founder: What's The Difference? - Lawpath (2024)

Co-Founder

A co-founder is a person who was involved in the initial launch of a business. They are a person who was there from the very beginning and helped start and develop the business into what it is in the present day. A co-founder might run the company as well but that depends on the role of the co-founder and the terms of the co-founder agreement. For instance, most co-founders in the tech scene are the developers of the product themselves. Therefore, although they are co-founders, they do not hold a principal role in managing the business. Rather, they are important in the way the business develops with the products he/she creates.

A co-founder will never change. No matter how big the business gets, a co-founder will stay as a co-founder even if he or she leaves the business. For example, Facebook’s co-founder includes Andrew McCollum. Although he is now the CEO of Philo (internet television company), he is still recognised as the co-founder of Facebook.

Business Partner

Conversely, a business partner connotes a more formal arrangement. A business partner is a person who is a principal part of the business. There are two types of business partners; a partnership within a business and a partnership external of the business.

Internal Partnership

This is often referred to as a business partnership whereby there is a formal arrangement between two or more parties to manage a business. Parties often share its profits and liabilities. This is a business structure similar to a joint venture. Many professional services firms operate under this structure such as law or accounting firms.

As a result, a business partner in the context of a partnership is a person with significant ownership and control and partakes in the daily activities of the business. He/she is usually someone who manages and runs the business.

Generally, since it is a formal arrangement, you will need a partnership agreement.

External Partnership

However, a business partner may also refer to someone external to the company; one you work with. Depending on the nature of relationship, it may be a contractual relationship or something loose. For instance, a contractual relationship may take the form of a joint venture. Conversely, a more loose relationship means that the business partner may be anyone who is in a business relationship with you, such as a supplier or a customer.

Differences

Entrance to the business

A co-founder is someone who helped found and develop the company. The person is usually someone who is involved in the initial launch of the business and is present at the start of the business.

A business partner may be part of the business any time during the business’ operation. It could join once the business reaches maturity and has significant market share or at the early stages of the business. Business partner(s) may vary over time.

Roles

A co-founder does not necessarily mean the person runs or manages the company. Although the person has a principal role in how the business starts, the person might not have a role in the future of the business.

The co-founder might leave the business anytime and will still be considered as a co-founder of the business.

Conversely, a business partner is a person who is part of the management team of the company. The business partner helps run and manage the business.

Formality

A co-founder usually does not entail a formal arrangement. The co-founder simply agrees to start a business alongside another person. Although this might involve a contractual relationship between the two, there are no express legislation that governs it.

Conversely, the Partnership Act 1892 (NSW) governs partnership agreements.

Conclusion

To conclude, a co-founder and a business partner are similar in ways. Both persons are considered to be essential parts of a business. They help the business develop. However, the difference between the two lies in the timing, role, and formality. A co-founder is not restricted by the same rules a business partner is obligated to. Subsequently, to gain a more thorough understanding and which title you should give more attention to, you can consult a business lawyer.