Going Into Business With Someone? Check These 6 Things First

Before you vet a business partner, accept one uncomfortable fact: in most partnerships, their financial problems become your financial problems. If they’ve personally guaranteed debts they can’t pay, have a judgment hanging over them or left their last two ventures owing vendors, that history follows them into your shared company. So check six things before you sign: who they really are, their credit, their court and lien history, their past businesses, their tax situation, and whether you actually agree on how this thing works.

None of it is about suspicion. It’s about not finding out in year two what you could have learned in week one.

The partnership nobody checked

A fictional story, but you’ll recognize it. Renee runs a successful catering company. Tom, a friend of a friend, has a great kitchen space and wants to open a lunch spot together. They hit it off, shake hands on a 50/50 split, and form an LLC. Renee puts in $60,000. Tom puts in the lease.

Eight months later, a creditor of Tom’s from a failed restaurant five years earlier wins a judgment and starts asking about his ownership stake. The bank that was going to give them an equipment loan wants personal guarantees from both owners, pulls Tom’s credit, and declines. And Tom, it turns out, has been behind on his own taxes.

None of that was secret. All of it was findable. Renee just never looked, because asking felt rude.

1. Confirm they are who they say they are

Start simple. Is the name they gave you their real legal name? Is the address they mentioned where they actually live? Does the phone number they text you from actually belong to them?

This sounds paranoid until you’ve heard a few stories about “investors” and “partners” who turned out to be someone else entirely. It’s also the foundation for every other check on this list, because court records, business filings and credit files are all indexed by legal name and address. Get those wrong and you’ll search for the wrong person.

A phone number is a surprisingly good starting point. Our lookup takes the number your prospective partner uses and returns the name and current address on their credit file, along with phone details: line type, carrier, caller ID name and a fraud score for the number. If you’re only after the ownership question, our guide to finding out who owns a phone number covers the options, free and paid.

2. Look at their credit, with their OK

Their personal credit matters for two concrete reasons.

Lenders will look at it anyway. Small business loans very often require personal guarantees from the owners, and the SBA requires them from anyone owning 20% or more of a business that takes a 7(a) loan. If your partner’s personal credit is weak, the business’s borrowing options shrink, and you’ll find out at the worst possible moment: when you need the money.

It tells you how they handle obligations. A credit file is a record of promises kept and broken. A score is a summary, but the details are the interesting part: on-time payment record, how much of their available credit they’re using, total debt, collections. Someone at 92% card utilization with two recent collections is under financial pressure, and pressure changes how people behave in a business.

Federal law covers how you get this information. The Fair Credit Reporting Act only allows a credit check with a permissible purpose, and for a prospective partner, the clean one is their written permission. A text that says “Yes, go ahead and run my credit” is enough. Keep it. Our guide to getting consent for a credit check has wording you can borrow.

Then make it mutual. Offer to go first. “I’m putting real money in, so I’d like us both to look at each other’s credit before we sign. Here’s mine.” That framing turns an awkward ask into a shared step, and most serious people respect it.

With their OK, you can run a soft pull from their phone number and see their name, current address and FICO® Score 4 from TransUnion, plus a credit profile summary with total debt, credit usage, payment record and the factors holding the score back. A soft pull doesn’t affect their score and doesn’t notify anyone. If you want every individual account, tradelines are available as a paid add-on; our explainer on what a tradeline is shows what that adds.

3. Search court records, liens and judgments

The three nationwide bureaus stopped reporting civil judgments and tax liens back in 2017 and 2018, so a clean credit file tells you nothing about either. This check has to be done separately, and it’s where Renee’s story would have changed.

Look for:

• Civil lawsuits and judgments in the county courts where they’ve lived and done business. Many counties have online search. Unpaid judgments can lead to liens and garnishment.
• Federal cases and bankruptcies through the federal courts’ public records system. A past bankruptcy isn’t a dealbreaker. How it happened, and what they learned, is the real conversation.
• UCC filings with the Secretary of State in their state. These show when a lender has taken a security interest in someone’s business assets. A string of UCC filings from short-term lenders often signals a business that was borrowing its way through cash crunches.
• Professional license records if their role depends on one (contractor, real estate, food service, insurance). State licensing boards usually publish disciplinary actions.

A lawsuit isn’t automatically a red flag. Business people get sued. A pattern of former partners, employees or vendors suing them for unpaid money is a different story.

4. Look into their past businesses

Most states let you search business entity filings by the name of the owner, organizer or registered agent. Find out what they’ve started before and how each one ended. Was it dissolved properly, or administratively dissolved for failing to file reports? Did it close owing money?

Then do the thing people skip: call people. Former partners, a vendor they worked with, a landlord they leased from. You’re not running an investigation, you’re doing what any lender would do. Ask open questions. “What was it like working with him?” tends to get more honest answers than “Was he reliable?”

If they’re bringing customers or a book of business into the partnership, ask to see the evidence. And if your new venture will extend credit to customers, it’s worth knowing how they plan to handle that too; our post on checking customer credit before offering net terms is a good shared read.

5. Get clear on taxes and money

Unpaid taxes are one of the most common and most hidden problems a partner can bring into a business. Ask directly whether they’re current on federal and state taxes, and whether they have any payment plans or liens.

If you want something more concrete than an answer, they can download their own tax transcripts using the IRS Get Transcript service and share them with you. It’s free and takes a few minutes for someone who has nothing to hide.

Also make sure you both understand how your structure will be taxed. A multi-member LLC is generally taxed as a partnership by default, which means the business files an informational return on Form 1065 and each partner reports their share of profit on their own return, whether or not the cash was actually distributed. That last part catches a lot of new partners off guard. The IRS overview of business structures is a solid primer, and an hour with an accountant before you file anything is money well spent.

6. Have the hard conversation, then write it down

The first five checks are about their past. This one is about your shared future, and it’s where more partnerships actually break.

Sit down and answer these together, in writing:

• Money in. Who’s contributing what, in cash, equipment, property or work? What happens if more money is needed?
• Time in. Is this full-time for both of you? What happens if one partner wants to step back?
• Decisions. Who decides what? What needs both signatures? How do you break a tie in a 50/50 deal?
• Pay. When do owners start drawing money, and how much?
• Exit. What happens if one of you wants out, gets divorced, gets sick or dies? A buy-sell agreement answers this before it’s emotional.
• Personal debts. What happens if a creditor of one partner goes after that partner’s ownership stake?

Then have a lawyer turn your answers into an operating or partnership agreement. This isn’t legal advice, but it’s the least controversial advice anyone in business will give you: a handshake is not a structure.

How to vet a business partner without blowing up the deal

The biggest reason people don’t vet a business partner isn’t time or money. It’s the fear of offending them. A few things help:

• Make it a two-way process. Share your own credit, records and tax status first.
• Frame it as the bank’s view. “Any lender is going to pull both our credit and look at our histories. I’d rather we know what they’ll see before we apply.”
• Use a checklist. It’s less personal when it’s a list you’d use with anyone.
• Watch the reaction. Good partners usually say “makes sense” and hand things over. Someone who gets defensive, delays or dodges has told you something important.

The same instincts apply to other money relationships with people you like. If you’re also thinking about lending a friend money or co-signing for someone, see lending money to a friend and what to know before you co-sign a loan.

A note on doing this the right way

Everything on this list is legal and normal, with one rule worth repeating: you need a valid reason for a credit check, and the person’s OK is the simplest one. Looking up a partner’s credit behind their back, or using what you find to embarrass them, isn’t OK and can carry real penalties. If you want the longer version, our post on whether it’s legal to look up someone’s credit covers it, and our compliance page has the plain-English rules.

Done right, these six checks take a few days and cost very little, which is nothing next to the cost of a partnership that goes bad. Start with the easiest one: ask for their OK, then run their phone number.