Business partners and agreements - Part 1. Do we really need a documented agreement?
Sunday 24 February 2019
In this series of articles we’re talking about the importance of putting into writing the exact nature of the legal, financial and business relationship you have with any partners in your business.
Horizon sees many instances where a successful business, with strong financial fundamentals and a promising future, comes unstuck because a lack of clarity between partners turns the relationship sour.
We work with, and can recommend, the right commercial and structuring lawyers to help ensure you get an agreement that is right for you and the financial future of your business.
In this article we answer the question “Do you need an agreement with your business partners?”
Going into new business with other people is exciting and can be extremely rewarding. A formal agreement can set the ground rules and stop owners getting caught out if things don’t quite go as well as planned.
Whether your firm is structured as a partnership or a company, you and your business partners need to agree on the terms of your professional relationship. This will be a partnership agreement, a shareholders’ agreement or, where you are operating a trading trust, a unitholders’ agreement.
There are many businesses out there that do operate without this agreement, however if you decide that it would be prudent to have one, the agreement can set out salient points, such as:
- the agreed responsibilities of each participant in the operation of the business
- what contribution each participant is bringing into the business — skills, know-how, access to funding and connections
- profit and loss sharing formulae
- consequences of failure to deliver one’s responsibilities
- future funding options
- exit mechanisms
- decision making process, including day-to-day business operations and internal matters, such as the remuneration of directors (where there is a company structure), reinvestment of dividends/profits into the business
- short and long term business plans, and
- procedures when one participant becomes incapacitated or dies.