Starting a business with someone you trust can be an exciting and rewarding venture. You share a vision, trust each other, and are driven by a common goal. However, without the right legal foundations in place, even the strongest relationships can come under strain. Here are the key legal steps to get right from the start. 1. Choose the Right Business Structure One of the first decisions you will need to make is how to formally structure your business. While a partnership is an option, most people going into business with a partner opt for a company structure. A limited liability company provides personal asset protection and makes it easier to bring on investors or additional shareholders down the line. 2. Get a Shareholders Agreement in Place This is arguably the most important step you can take. A shareholders agreement documents the rights, responsibilities, and rules of operation between the owners of the business – think of it as the rulebook for your partnership. Without one, disputes can escalate quickly and become very costly. A well-drafted shareholders agreement should cover the following key areas: Decision-making – clearly sets out how decisions are made within the business, including both day-to-day operational decisions and major strategic ones Profit sharing – one of the most common sources of conflict in business partnerships is disagreement over money. The agreement should clearly set out how profits and losses are divided, whether based on shareholding percentages or structured differently to reflect each party’s contributions Exit provisions – circumstances change. A shareholder may want to sell their shares, retire, or simply move on. Your agreement should include provisions governing what happens in these scenarios Deadlock provisions – a deadlock occurs when shareholders cannot reach agreement on a key decision and neither party has a casting vote, which is particularly common in 50/50 arrangements. Your agreement should include a clear mechanism for resolving this Dispute resolution – even with the best intentions, disputes can arise. Litigation is expensive, time-consuming, and damaging to both the business and the personal relationship. Including a dispute resolution clause that requires parties to attempt mediation or arbitration before going to court is strongly recommended Going into business with a friend can be incredibly rewarding, but it pays to get the legal groundwork right from the start. The cost of putting an agreement in place is a fraction of what a dispute can cost you down the line – both financially and personally. We recommend seeking legal advice before commencing any business venture. Talk with our team today, and they’ll be happy to guide you on this new venture.
