When starting up a small business it is undeniable that you will be spending more time with your business partner than anybody else, so make sure this person is someone you like, get on with, have the same value as and trust and respect them. Much like a marriage, this partnership is a legal agreement between two individuals. Before you decide to commit to the relationship you must be sure that you can weather the storm. As exciting as it may seem to team up with a family member or friend, it is important to start a new company with open eyes. It is important to realise the faults they have before agreeing to the partnership. You are going to experience celebrations and failures, curveballs and perfect, through thick and thin this partnership has to last.
First things First
It is important that you both outline exactly what you want from the business, where you want it to go and who is going to be driving that process forward. This is not the time to beat around the bush, sit down and discuss a strategy that you both agree on. Try and cover all eventualities, what’s the procedure for holiday days? Sick days? Etc. These are all trivial concerns which may make or break the partnership.
Who Owns What?
Decide what percentage of the business you will each own, and what percentage you will need to sell to investors. It doesn’t have to be a 50/50 split, especially if there are reasons to suggest otherwise, for example one of you may be working full time whilst the other works part time or maybe one has more to invest than the other? It is also important to establish the budget you wish to set on certain parts of the business, for example you must delegate a budget for marketing and merchandise, promotional bunting is equally as important as business cards. Make sure you invest in your organisation so others will too.
Put Together a Contract
Next, all of these agreements, however petty you think they are now, it is important that they are all written down in a contractual agreement. It is advisable that you make this agreement using the help of a legal solicitor. Remember to also register your business as a limited company through Companies House.
- What is a limited company?
A limited company is a company in which the liability of members or subscribers of the company is limited to what they have invested or guaranteed to the company. In short by limiting your company you will give it separate legal identity, this will add credibility and prestige to the business as well as ensuring no one else can copy your company name.
A Shareholder’s Agreement
This vital part of protecting the business ensure that’s your stake in the company is secured, despite whatever arguments that may arise in the future, this can be especially important when working with family and friends. There is nothing worse than having to tackle awkward conversation around the family dining table or continue with a friendship which has been tarnished by workplace disagreement.
A shareholders’ agreement is the business version of a marital pre-nup. Essentially it defines what happens if people want to go different ways. It is a safeguard offering a set of terms to prevent complications further down the line when the company is larger and there are more assets to divide up. The agreement will contractually cover:
- Rights and obligations you both have towards the company
- It will regulate the sales of shares in the company, both present and future
- Describe how the company is going to be run
- It will provide an element of protection for minority shareholders
- It is also defines how important decisions are going to be made, again both present and future.
A Word of Warning
Working with family and friends can be fantastic, and it can work really well. However, it can also end up in a complicated mess. Make sure you are completely sure before jumping into an agreement. Good luck!