My friend and I are thinking about going into business together. Hes creative, hes hardworking -- and hes very irresponsible with money (he once bought a vintage video game machine instead of paying his rent). His credit isnt so hot, either. Are there ways I can protect myself?

Short of shrink-wrapping your friend in plastic, theres probably no way to completely prevent that person from impacting either your finances or those of your business. But if you are determined that this is the person with whom you want to partner up in a business venture, lets look at the damage control options for yourself first, then for the business.

To protect yourself, the key is how you set up your business. Both a corporation and a limited liability company (LLC) protect business owners from personal liability for business debts. If you organize your business this way, your personal assets will be safe. However, if you and your friend create a general partnership, you will both be personally liable for business debts -- leaving you on the hook for your friends spendthrift tendencies.

Stopping your friends financial hijinks from getting the company, not just you, into a bind, is going to take more day-to-day effort on your part. Here are some strategies:

• Limit your friends authority over expensive contracts and purchases. For instance, all major contracts should contain a paragraph stating that theyre not binding on the business unless theyre signed by at least two officers or members (depending on whether you set up a corporation or an LLC). If you set up an LLC, your operating agreement can require that both of you need to agree before entering into a contract or borrowing money. If you set up a corporation, its best that your friend not be able to give outsiders the impression that he has authority to bind the company -- by bearing the title of president or vice president, for example.

• If you really want to keep your friends hands out of the company cookie jar, make sure youre the only signatory on the company bank account, hide the checkbook, and read your company credit card statements very, very carefully.

Keep in mind that unless your friend openly admits to his pecuniary problem, he probably wont greet these ideas with delight. But your friend shouldnt mind signing a "buy-sell agreement," which will control what happens when one of you wants out of the business (regardless of the structure you choose for your business). And who knows, maybe youll actually enjoy the occasional video game.