When commencing a business even if it is with your spouse it is important to consider what formal agreements you will have between parties. Whilst initially there are no challenges it is important for further down the line to have an agreement in place to ensure that if disputes and conflicts arise there is a process in place to deal with these.
The Advantages of a Partnership Agreement
Implementing a partnership or directors or shareholders agreement will allow you and your partner to formally structure your relationship in a way that benefits your business. In doing so, you will have a clear understanding of what all parties responsibilities are and other important terms (such as what happens if one of you wants to leave the business).
If you create a clear document which outlines all the conditions to your business, you will be in a much better placed to rely on any agreements you have made with your business partner/s should you need to in the event of a conflict or dispute.
Typically, an agreement may include the following –
- Director/partner obligations and expectations regarding attendance and meetings and conduct in general;
- Directors/partners roles and responsibilities;
- Process for calling meetings;
- Process for breaking deadlocks in voting situations;
- Shareholders/partners decisions requiring a special resolution (75%+ of the votes);
- Provide a list of shareholder/partner obligations, such as acting in good faith and preserving goodwill;
- Shareholders/partner right to inspection of books;
- Processes where additional capital is required
- Right of first refusal over the sales of shares and process thereto or rights to exit partnership
- Rights/obligations where death or incapacitation of a shareholder/partner occurs;
- Share valuation accepted methodology;
- Use of insurance policies under buy/sell arrangements;
- Restraints of trade in the event of a shareholder exiting the business;
- Shareholder dispute resolution procedures;
What I often ask clients who think nothing could happen to them – would you like to be in business with the your business partners family if something was to happen to them? From my perspective this is one of the most important documents your business should have.