So, you have been operating for a while now and are considering bringing on a partner because you realise that you are unable to achieve your objectives on your own. The problem is, you don’t know where to start and after all the horror stories you have heard, you are a little hesitant to say the least.
Well the good news is, providing you do it correctly, bringing on a partner should be no more difficult than concluding a sales contract with a client.
Most often, we bring on business partners because we need the additional capital to grow our businesses or because they possess a skill we need but cannot afford to hire in the market place.
When looking for somebody who meets your requirements, it is important to ensure that you get along with them on every level because your individual personalities will play a large part in how the business is run, clashing personalities are very often the cause of many business failures.
Once you have found the person to you feel is most suitable for you and your business, it is important for you to prepare a shareholder (Companies) or membership (Closed Corporations) agreement. This step is very important and should not be overlooked as it will be very difficult to prepare one after the fact.
In preparing your agreement it is important to write down all the potential issues both of you feel might get in the way of running the business. Below is a list of some of the more common issues we have had to deal with:
Shareholders – It is important to be clear who owns the shares of the business as the agreement is between these parties and not necessarily individuals.
Ownership Percentage – Be very clear as to what percentage each shareholder owns?
Object of the Business – You need to state what the business does.
Loan Accounts – How are there to be treated in the business?
Death of a partner – How will the shares be treated if you or your partner die?
Key Man Insurance – Will the business be taking out insurance on the lives of the partners?
Conflict of Interest – it is important to ensure your partner is dedicated to the business and not pursuing other interests.
Directors & Chairman – You need to be clear as to who can appoint Directors and who will be the Chairman.
Deadlock – It is important to stipulate what course of action will be taken if the Shareholders find themselves deadlocked on an issue.
Dividends – What percentage of the profit will be paid out as dividends?
While the above list does not cover every eventuality, it is a good place to start when you are having your discussions. Good luck.