What it looks like in the beginningWhen two or more business partners come together, they generally have the same vision for the business – otherwise, building a partnership wouldn’t make a great deal of sense. It is also likely that the business partners will be in roughly the same stages of their lives, with the same personal priorities. This will allow business partners to work well together, and grow a prosperous business.
Why things might changeIt is likely, as time moves on, that those involved in a business will start to have different (and diverging) priorities. One business partner may have children, and have to take a step back from the day-to-day; the other may want to put all of his or her time into the business, and grow it exponentially. This can result in responsibilities falling predominantly on one individual’s shoulders, which may create a very different scenario than was envisaged at the outset of the business. This is not the only possibility. Business partners may also significantly disagree over business, or even personal, matters. It may no longer make sense for them to work together. Or one of the business partners may fall ill or die (and, to protect against this, it is highly advisable for businesses to invest in key person insurance). Whatever the reason, it is not generally the case that things stay the same forever, and businesses are often forced to adjust and take account of different business visions, and different lifestyles of their founders.
How does a smart business owner protect against this?I mentioned previously that intelligent business owners will plan for the end, at the start. So how can this be done? This will be dependent on the type of business involved, although the principles are the same. If the business is a limited company, a shareholders’ agreement should be prepared; if the business is a partnership, having a partnership agreement in place is advisable. These agreements will cover matters such as each business partner’s investment, responsibilities and ongoing return from the business. A good agreement will also address the following:
- What happens to the business licences, name registrations and intellectual property upon transfer or discontinuation of the business?
- The fact that, when a business partner leaves, he or she should no longer be responsible for the financial obligations of the business once he or she leaves
- Whether the remaining partners shall have the right of first refusal to buy the exiting partner’s equity share
- Whether the company/partnership itself shall have the right of first refusal to buy the exiting partner’s equity share
- How an exiting partner’s share in the business will be valued
Journey furtherTop Tips on Strategic Partnerships Working / Setting up a Business with Friends & Loved Ones
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