Business Law News, January 2010
ESTABLISHING A BUSINESS WITH FAMILY OR FRIENDS
There are many potential benefits to be enjoyed from setting up a business with a relative or friend. Managerial responsibilities may be shared in a more mutually-agreeable way than would otherwise be possible, and flexible working hours may be arrived at more readily as between parties to a family business. Importantly, friends and family members are likely to have extensive knowledge one another's particular strengths, expertise and capacities. However, care must be taken to avoid potential problems.
Competing interests and agendas of family members will not always coincide with those of the business, and can lead to potential conflict. Individuals may feel that they have made a disproportionate contribution to the business that has not been reflected in their reward. Ownership and control issues may also surface where a partner to the business retires or sells out.
We can assist and advise you to manage the dynamics of family and friends when starting a business or, when reviewing an existing business. We can assist you with drawing up a "game plan" that everyone is happy with when things are going well, so when things change, everyone is on the same page and you have a strategy to deal with sometimes unfortunate situations.
What is expected of each friend or family member ought to be made clear from day one. You must also be prepared to maintain a sharp separation between work on the one hand, and your family and social life on the other.
A legally binding document recording the structure and rules of the business is vital, whether it takes the form of a Shareholders Agreement, Partnership Agreement or Charter. Such a document ought to clearly enunciate the rights and responsibilities of each party to the business, as well as technical matters relating to the way in which the business is to operate, the way in which decisions are to be made, disagreements resolved and profits distributed during the course of the business or assets distributed in the event of dissolution. Issues relating to succession and retirement must also be addressed. Such a document provides a level of transparency that will minimise conflict in the future, and let's everyone sleep at night!
Contact us to discuss the setting up of your "game plan" either for a new or an existing business, we would be happy to help you develop your business in a less stressful way.