As the high-profile business relationship between Carl Frampton and Barry McGuigan reportedly breaks down, we look at some of the issues those going into business together should consider from the outset.
Whatever the reason for going into business together, joint business owners should be aware that they will not always agree with the decisions, strategy and/or desires of their partners. It is important to pre-empt potential issues and agree, whilst the relationship is strong and amicable, how they will be dealt with, if and when they arise. We highlight below a few of the questions that business owners should ask themselves and each other.
What is the business going to be? This may sound obvious but it is important to set boundaries on what areas the business will operate in. There is nothing to stop agreed expansion in the future but having a clear idea of the scope of the business from the outset is important and can identify fundamental differences in opinion early on.
What are the responsibilities of each owner? Setting clear boundaries helps in a number of ways, not least in ensuring that all parties know what is expected of them and ensuring that multiple people are not doing the same job.
If the business needs money, where should it be sought? There are a number of options, including external lenders (creating debt and repayment obligations), third party investors (which could create repayment obligations and/or involve giving up some level of ownership) and/or the owners themselves.
Who can make big decisions? There are likely to be some matters that should only be carried out with unanimous/large majority consent of the founders and agreeing what these are will outline the boundary of power for each owner.
Disputes? If there is an equality of voting power there is always the potential for stalemate on important issues which may adversely affect trading. Setting out a process for dealing with disputes will assist in resolving them swiftly and with minimal impact on the business.
What if an owner stops working in the business? If an owner leaves or fails to perform his or her duties, should they be required to give up or sell their interest to the other owners? Presumably they should be restricted from starting or moving to a competing business. It is important to agree what is reasonable in the circumstances.
Putting in place an agreement which documents the answers to these questions and others (such as a Shareholders’ Agreement or Partnership Agreement) can save a lot of time, cost and anguish in the long run. Trying to agree how to approach any of the above hypothetical scenarios when they become a reality can lead to lengthy debate and take the owners’ focus away from growing their business.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.
