Preserving Personal Relationships in Business Partnerships
Starting a business is an exciting and rewarding experience. Many people like to share that experience by partnering with friends and family. It’s an age-old practice that people have done for generations. However, for those just starting out, it’s important to remember that not everyone can bring the same level of enthusiasm and dedication to a business, and it can negatively impact the relationships that people have with one another. There are certain practices in setting up a business that will build a strong foundation that can preserve these relationships and set up a framework for handling disputes constructively.
Selecting the Legal Framework
To create a successful business venture with anyone, it is important to establish clear roles and responsibilities from the start. This is especially important for families and friends, who may have personal dynamics that can interfere with everyday operations. The exact parameters of each business partner’s responsibilities start with the selection of the type of business formation:
A Company - Commercial enterprise registered of incorporated under the Companies Act.
A Business - A sole trader (or sole proprietor), partnership, or trade registered under the Registration of Business Names Act.
Each business type has its own set of legal structures, fees, and reporting requirements. Generally speaking, a company is ideal for large enterprises, while a business name is best for small to medium-sized enterprises. If you and your business partners select to register a business instead of a company, it can be beneficial to follow the formation strategy for a company. This will provide scalability if the business grows rapidly, and make the Particulars of Directors and Beneficial Owners of The Company clearer for everyone involved at the time of incorporation.
Setting Legal Boundaries
One of the most important aspects of your business will be establishing the responsibilities of everyone involved. Who will perform the duties required of running the business such as payroll, paying taxes, or make important decisions on behalf of the business? Who will be held liable for any legal issues that arise during business operations? How is the value of each partner's contribution determined, and how will payment be carried out? At the end of the day, someone must be responsible for ensuring that the business or company is compliant with all applicable laws and regulations.
It is easy and exciting to develop a business plan and start on the journey toward success, however, it is not as simple to get all the particulars in writing. Creating a partnership agreement or shareholders’ agreement that each business partner can reference when the need arises is essential to a business’ ability to remain profitable and avoid conflict. The agreement should also clearly outline how to manage expectations and deal with disputes. Not every dispute will require the interference of the court or attorneys, so how will these disagreements be managed?
Considering the financial and operational aspects of the business can be an overwhelming undertaking. Developing a solid business plan as well as securing financing, and implementing effective management and operational practices is important to make sure that your business goals are realistic and achievable. The good news is that with or without partners, this process does not require navigating on one’s own. By consulting with a legal team that is experienced in business law and litigation, it is possible to create a solid plan that will withstand any legal challenge that may arise. To schedule a meeting with one of our firm’s professional and expert business attorneys, visit https://ramsayandpartners.com/contact to schedule a consultation.