Partnering with someone to start or buy a business is a relatively normal undertaking. However, it can be fraught with some rather nasty realities. A frequent reason that these nasty realities occur is a result of the formal business “partnership” being entered into without sufficient discussion or understanding of how this relationship will be carried out between the partners.
Have you and your partners discussed…
- Who is responsible for what?
- Who is authorized to write cheques?
- How do we make major financial decisions?
- How many directors will there be on the board?
- How many directors are required to have a quorum?
- Am I able to sell my shares?
- What if a partner dies?
More than simply being discussed, these important business terms/ governance issues need to be put down on paper and agreed to by all of the partners. The document that is used for this purpose is the Unanimous Shareholders Agreement (USA). This invaluable document can keep you from getting into situations that will cause distress to all as well as getting the partners out of situations should conflict or poor conduct arise. It is truly a valuable tool that needs to be in place within your partnership from the outset. Here is a little more on the USA:
One of the MOST important components of a USA (and an issue that is often not considered in the creation of a new partnership when everything is excitement and wonder) is:
“In our partnership, consisting of only me and one other person, we can barely stand to look at one another now and we agree on nothing. So, what do I do if I want my partner OUT of the business, but he/she wants ME out??”
Ah…yes…you trigger the infamous “Shotgun Clause”. A clause to be handled with great care and one that will be addressed soon in my next Small Biz Blog