Six factors for healthy business relationships (or break ups) to safe guard your business
Dowson Turco Lawyers’ (DTL’s) commercial team acts in costly disputes arising from the breakdown of business relationships every day. But they all-too-often could have been prevented if the founders had taken six key steps.
At the moment, we are acting for a client whose former director has stolen company assets and prevented the company from trading because he is relying on a partnership agreement that the parties signed without legal advice.
You and your friend/s may have arrived at a million-dollar idea or maybe you’ve found someone whose skills complement yours. Whatever the facts, in the optimism and excitement of growing your company, it is all too easy to lose sight of what may happen if things don’t work out with your business partner/s.
Here’s some advice you should consider when doing business:
1. Define the business relationship before the relationship begins
What is the business structure now and what should the business structure be? Are you going to be a director, employee or both? Are you entering into a partnership? What will be your revenue or dividend split? What will be your salary? The answers to these kinds of questions dictate the legal relationships within the business and getting them right will save you lots of money if things go pear-shaped.
2. Contracts are necessary
Shareholders agreements, employment contracts, partnership agreements, contractor’s agreements, company constitutions, confidentiality agreements and share-sale agreements are essential to streamlining your business and resolving most disputes. These documents outline the expectations of each party.
3. Resolve tie-breaking decisions
You and your business partner/s might want to see the business grow but sometimes the bosses don’t all agree. In circumstances where there are an equal number of business partners with equal power, dead-locked decisions can break a business in two. You should have mechanisms that allow dead-locks to be resolved in the least adversarial way possible. A shareholders or partnership agreement is key to tie-breaking.
4. Proactivity is cheaper than reactivity
It’s just like seeing a dentist, the earlier you talk to a lawyer, the better. We have seen start-ups crumble before the business even traded because the owners didn’t plan their legal relationships. If things do end, buying out one partner is much cheaper (and easier) when the correct documentation is in place to facilitate the exit.
5. Leave legal work to the legal professionals
You’re smart and business savvy, so it is tempting to download DIY contracts. But do you understand how the documents operate? Do you know what a waiver clause is? Does the document allow for severability of clauses?
In our experience, DIY contracts are invariably inadequate and often incorrect for the circumstances. If you proceed with DIY contracts you risk a minimum 10 to 20 times cost expenditure when things go wrong.
6. This is a relationship
Although it may appear self-evident, business relationships are still relationships between people and are therefore subject to the same pitfalls as personal relationships. What may begin with energy, excitement and mutual commitment could break down irretrievably because personalities do not click.
Small gripes or differences in vision tend to become magnified over time. It is important to remember that the person(s) you are going into business with have their own work styles and thought-processes for where they see the business or themselves heading. Their vision may not align with yours.
You cannot divorce the human element from your business and once this is accepted, what follows becomes easier to plan for.
Give our commercial team a call on 02 9519 3088 and mention your membership of SGLBA for a free telephone advice session.
About Dowson Turco Lawyers – SGLBA Business Member
We pride ourselves on a diverse clientele comprising not only the gay and lesbian community, but people and businesses from all walks of life, and most importantly everyday Australians who work each day and participate in our free society.
We seek out legal matters of community interest, particularly legal matters affecting human rights in employment and community participation.
We are proud supporters of the Sydney Gay and Lesbian Mardi Gras, particularly through our membership of the organisation generally, our sponsorship of a stall at Fair Day and our general community contributions throughout the history of our firm.