Starting a business on your own is tough. If you’re planning on working as a sole trader and not expanding your business it can be a good option, but if you’re looking to build a start-up that will hopefully grow rapidly both from a revenue and personnel perspective, working with partners makes sense. A number of studies on start-ups have shown that businesses with two or three co-founders are the most likely to succeed. This isn’t surprising given the additional capabilities working with partners will give your business!
If you do decide on working with partners, there are a number of issues to keep in mind; we set out a number of these in this article.
1. Decide on a Business Structure
You can either decide to go into business as a partnership or a company. You can work out the best structure for your business by reading our article on “Company Structures”. Once you’ve decided on a structure you will need to document the agreement between the partners in a legal document.
2. Legal Agreements for working with partners
If you’re setting up a partnership, you will need to draft a partnership agreement. If you’re setting up a company structure with your partner, you will need a shareholders agreement. In either of these agreements you will need to include terms relating to (i) how profits are to be shared, (ii) how much start-up capital each party will contribute, (iii) ownership percentages, (iv) buy-out options and (v) separation of work duties.
A good partnership agreement or shareholders agreement, such as the LegalVision documents, will contain many more clauses setting out the way in which the relationship between the parties is to be governed. If your business is relatively simple, you don’t need a huge document to set out the relationship between the parties, but it does pay to be as clear as possible – this can save you time and money in the event of a subsequent dispute with your partner/s.
Communication is the key to working with partners (or a personal partnership!). It’s a very good idea to have a regular weekly, fortnightly or monthly meeting to discuss the major issues facing your business. If you’ve formed a company you can tie this in with your board meetings, although this isn’t strictly necessary. Furthermore, you should make sure you communicate on a personal level with your partner on a daily basis, whether over email, phone or face to face. A large number of legal disputes are caused by poor communication. Don’t let this happened to you!
4. Exit Strategy
It’s important you and your partners are on the same page with regards to the businesses exit strategy. If you’re goal is to build to sell, and your partner wants to set up a lifestyle business, you’re going to end up in dispute. Make sure you both have the same goal from the start, and build tag-along and drag-along clauses into your Shareholders Agreement (these are included in the LegalVision Shareholders Agreement).
Working with partners can be difficult. To form a successful business partnership you need to be on the same page from the start and to document your agreement with a well drafted Shareholders Agreement or Partnership Agreement. LegalVision can help you with this! Contact our office today to speak with an experienced business solicitor on 1300 544 755.