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Partnership Agreements

Simulate failure for success!

Thursday, August 29th, 2013

This may seem an odd thing to do, but when putting an agreement together with another person or business, it is vital to think of what could possibly go wrong. In most instances of entrepreneurs setting up in business, they are usually doing so with a family member or best friend. Thoughts of them doing a runner or not pulling their weight will most likely not cross anyone’s minds. Nine times out of ten, people proceed with no agreement at all and this is a big mistake.

Contributed by Andy Voss (1635) on 02.08.2000.

Contributed by Andy Voss (1635) on 02.08.2000.

Just think of an airline pilot. They spend hours in a simulator, rehearsing every possible scenario both good and bad. The worst scenarios are the most valuable and in the recent tragic helicopter crash off Aberdeen, it was said that it was thanks to the pilots skills, that not more had died. He too will have rehearsed complete engine failure. If he hadn’t, it could have been a lot worse.

Large business have entire disaster recovery plans where they put mechanisms in place should the entire office be wiped out due to a natural disaster or there be a simple electrical failure eg hospitals. Small businesses should do the same.

I know it is not nice to think about things going wrong. Even if your family member or best friend stay loyal and hard working to the end, they may be subject to events beyond their control such as illness or the pitter patter of tiny feet or their other half moving jobs to another part of the country… My advice is to grasp the nettle and when entering into any kind of arrangement, have a contract in writing which sets out not only all of the positive elements of who will do what, but also all of the worst case scenarios.  That way, if they should happen, you will be prepared. Best still, pick up the phone to your lawyer and let them guide you and prepare an agreement tailored to your needs.

To get you thinking, look out for our forthcoming tips on “should the worst happen”.

Festive glow from one of our clients

Sunday, November 18th, 2012

Soy Candle Collection The Soy Candle Collection sells beautiful hand-made candles made from 100% eco soy wax, which is produced from pure soybean oil. The business was set up by two friends and we helped draw up the agreement between them covering all key areas such as how they would make decisions, how profits were to be split, what they could spend money on and how to deal with the situation if one of them wanted to leave or was unable to continue. One year on they are still going strong and we like to think it is because they are built on solid foundations.  Take a peek at their range here.

The founder commented:  ” We have been delighted with Off To See My Lawyer!  Jo offers a very professional service, delivered in an approachable and friendly manner, effectively communicates and translates complex legal requirements into a workable business format to help build and support our business. Jo’s help has been very valuable and we would highly recommend Off To See My Lawyer.  Thank you Jo!”

When its time to part…

Friday, July 20th, 2012

As a Mum of two children that I cannot bear the thought of being without, the time has suddenly come when they want to spread their wings. I naively thought this would not happen for a while, but no, they have plans to travel, meet with friends for days on end- the time is NOW!Business exit strategies

It occurred to me that similarly, business owners face the same scenario: teaming up with best friends and partners to run the perfect business not ever thinking that they might part company. They may not even want to part company and simply have circumstances forced upon them such as illness, moving country, pitter-patter of little feet…Then the question of splitting up the business or continuing to run the business with someone else rears its ugly head and no one has the answer. This is where it is vital in any kind of partnership to clearly spell out what happens if the unthinkable occurs. It is usually set out in a Partnership Agreement ( in the case of a simple partnership) or Shareholders’ Agreement ( in the case of owners of a limited company). Key areas to think about are:

  • Who can the leaving party transfer their share to? Should they offer it first to the remaining partner? If so, how will it be valued?
  • If the remaining partner doesn’t want it, can the leaving partner simply offer it to anybody? Even competitors?!
  • What happens to property and assets contributed to the partnership? How will they be split, if at all?
  • What circumstances will trigger the ‘leaving provisions’? Just external events such as death, illness, moving country or also breaches of the partnership agreement itself?

Whilst these questions may seem morose, they have to be faced-just like my birds flying from their nest. Chances are, you will hopefully never have to face them once you have addressed them, but you will have peace of mind knowing it is covered.