By Melissa Higham - 7 Mar 2013
Sometimes it makes all the sense in the world to get into
business with another person or people. They may have skills
which you don't, they may have capital which is not available to
you or contacts which may be useful to you. There are a myriad
of reasons why it can be a good idea. Sometimes two heads (or
more) are better than one.
The key to making sure it stays a good idea is ensuring that you
have a written agreement which clearly sets out the parameters of
the new relationship. It is essential that everyone, whilst
they are in agreement and enthusiastic about the new venture,
agrees how the business will be operated.
It doesn't matter whether it is a joint venture arrangement or a
shareholders agreement, there are a number of key matters which
must be agreed at the outset, including matters such as:
- Who makes decisions and who is in control?
- What are the parameters of the decision making (eg: is
there a limit on what can be done without the other person's
consent)?
- How is the business to be funded?
- What happens if a disagreement arises - the agreement needs to
set out a dispute resolution procedure to ensure that there is a
way of reaching a resolution of the dispute.
- How can new people join the business and how can existing
people get out? Having an agreed exit route is
essential.
- Are there pre-emptive rights - if they are not exercised, who
can the existing person sell to? Are you able to sell to
competitors?
- Is there to be a restraint on someone who leaves?
- What happens if a key person becomes incapacitated or
dies? How will the business survive and what happens to their
interest in the business?
This is just a small list of the issues you need to consider.
Most business relationships start off enthusiastically, meaning
many people believe they do not need a written agreement (as they
are friends or associates and will be able to work it out) however
a written agreement is essential. If things go wrong, the
relationship may fall apart and the business may fail as the focus
becomes all about the dispute.
Having a clear, concise agreement at the outset can assist in
reducing the chance of a dispute arising as each person's roles and
parameters are clearly spelt out. Once a dispute has arisen
without a written agreement, it can be next to impossible to get
people to agree on a method to resolve the dispute.
If you are considering getting into business with another
person, please give us a call to discuss the implications and what
we can do to assist you to ensure that there is a solution to
problems which may arise.
Contact
Melissa
Higham