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Going into business with another. Is it really a good idea?

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.


Melissa Higham


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