Going into business is like a marriage – sunshine, lollipops and roses …. at the start. But as we know, humans are all weird, strange and difficult characters – just ask anyone who’s been married for a while! There is always some level of conflict and business is no different, hence the need for rules – I’m talking about ‘shareholder and partnership agreements’. These agreements need to set out the rules of engagement. They need to cover the rules around set up, effective running and how to blow the business to bits (if things go pear-shaped).
The agreement should cover:
- How the business was funded and how much each shareholder’s capital is at risk
- The number of shares held
- How shares are valued, transferred or sold
- The rules around the board meetings
- How directors are appointed and removed
- What decisions the directors can make and what needs shareholders’ sign off
- How profits are distributed
- How disputes are resolved
- What happens if someone becomes disabled or dies.
Lots of people go into business with only stars in their eyes – life often throws a curve ball and things don’t always go according to plan. Being in love is great, but getting divorce sucks, and business is no different. Having spent the time getting the rules set in stone, is prudent. It will make a bust up so much easier and cheaper – expect the best, and plan for the worst!
A good legal firm will have a standard framework to follow and you can then personalise this document to suit your individual circumstances.
As a side thought, even if you work for your own company, have a job description and employment contract. If you have an income insurance claim, it just makes things so much easier!
My advice is, get advice! Ideally, have a financial round table, with you at the top of the table, and your advisers around the table. Think lawyer, accountant and financial planner (someone who actually runs a real business and who has been around a while); they are handling these situations all the time.
And I know it’s tempting, but don’t write your own agreement – an unfortunate problem we see far too often, which can end in tears.
I’m only a phone call away, and am happy to help – don’t hesitate to reach out.
Remember if it isn’t written down – it doesn’t exist.
WealthDesign – a life well planned