AVOID THE HURT: Having a properly drafted Partnership/Shareholder Agreement can save you lots of money and even your relationship!
1 May 2020 by Simone Pentis
When going into business with a friend there is generally a lot of excitement and the belief that as friends you know each other and will be able to complement each other’s strengths and weaknesses.
While I have seen some friends and family build up fantastic businesses and win awards, unfortunately, I have also seen where people have started out as friends and/or with a common goal, but things happen and the relationship and business deteriorates. In one instance not only did the parties behaviour result in additional costs to operate the business, their situation deteriorated to the extent they could not be in the business at the same time and a physical fight took place between two of the four partners in front of team members and customers. In another, costs of the business rose to deal with the extra steps each required the other to take when the trust had deteriorated and/or misunderstandings .
Therefore, I cannot strongly enough recommend that before you enter into the business, when the friendship is at its peak, you should enter into a shareholders or partnership agreement.
This is also a great way to clarify from the beginning parties’ expectations, roles and how the future will be dealt with, so potential issues may actually arise for discussion and consideration before the parties have put down their money and are locked into contracts.
Furthermore, when you are dealing with franchises, a shareholder agreement can become even more important if parties are unable to properly operate the business due to a health, financial or family issue, or just a personal dispute. Irrelevant of whose fault this may be, the Franchisor cannot pick sides and must take action as appropriate against the entity that is the franchisee, potentially breaching and/or terminating the franchise agreement.
Having a shareholders or partnership agreement gives the parties the opportunity to set out from the start various factors that will directly affect how the business is to operate and/or end.
Shareholders or Partnership Agreements, if properly drafted by a lawyer who has taken the time to understand the business and parties’ needs, can assist parties to establish a good foundation for their business relationship as well as hopefully prevent, reduce or assist parties manage any expensive and damaging disputes that may otherwise arise.
For our Shareholder Tips & Checklist please contact us.
We work with our clients to put them in the best position. To let us help you get into the best position and then carry it effectively through, please contact us at admin@advpartners.com.au or on 0406 992 365 for an initial free chat and access to our Shareholder Tips & Checklist..
Please note that this is a general brief update, it does not purport to be comprehensive legal advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.