When starting a business many people consider doing it with someone they know. It often makes things less scary and it usually means shared costs.
A business partnership however is like a marriage and like any ‘coupling’ requires serious consideration.
We recommend that specialised advice be obtained and a Stakeholder Agreement (think of it as a business ‘pre nup’) be entered into before the fun begins.
What is a Stakeholder Agreement?
You can think of a Stakeholder Agreement as a ‘rule book’ for the operation and management of your business as well as a ‘pre-nup’ for managing the end of your business relationship.
Partnership Agreements, Shareholder Agreements and Unitholder Agreements are all types of Stakeholder Agreements and the type of Stakeholder Agreement which will be appropriate for your business is dependent on the structure of your business.
Do I need a Stakeholder Agreement?
Best practice is to enter into a Stakeholder Agreement with your business associates at the commencement of the business relationship. This allows parties to have positive and productive discussions from the outset and make proactive decisions about how the business is to run, who is responsible for what and how disagreements are to be overcome. It also enables any differences in approach and opinion to be highlighted early so alternative strategies and resolutions may be considered and discussed in a collaborative and non-confrontational environment.
Stakeholder Agreements will often consider issues such as:
- How decisions are made
- How disputes are resolved
- What happens if a party wants to leave the business
- What happens if a party passes away or becomes incapacitated
- Who is responsible for injecting funds into the business
- How are profits to be divided and distributed
- Can other parties buy into the business
- How will the business be valued
- The process for selling the business
Don’t fall into the trap of thinking that because you’re entering into business with your best friend or a family member that you don’t need a Stakeholder Agreement. In practice having a Stakeholder Agreement when entering into business with someone you have a pre-existing personal relationship with can assist in ensuring that the personal relationship is preserved beyond the lifespan of the business by assisting in the prevention of business related disagreements and dictating the manner in which disputes must be resolved in the event they arise.
Spending some time negotiating and discussing with your business associates how your business is to operate and be managed early in the business relationship can save much time, stress and money down the track.
If you’d like to proactively make decisions about the management of your business, contact us to organise an obligation free telephone consultation.