What to consider legally before teaming up in a business partnership
Due to the uncertain business climate and economists claiming that Australia will most certainly enter a recession after a 29-year recession-free run, many people are starting to consider options of going into business with another partner.
More people are starting a business together because of the advantages of using shared resources, expertise and joined funds, which makes good practical sense.
But going into business with someone else has legal implications. To avoid the traps of a potential “business divorce” down the road, set up your legally binding agreements now while things are amicable so you can confidently spend your time growing your successful business together.
Here are a couple commercial law considerations with which our lawyers can assist you.
- Business contracts
Going into business is an excellent way to leverage resources but having a poorly written or researched agreement could be setting you up for future personal liability issues. An experienced lawyer will prepare all types of legal contracts, including purchase or sale of the business, call options, franchise agreements, supply agreements, service agreements, distribution agreements, partnership agreements and commercial contracts. They will determine whether certain terms and conditions are suitable for your business now and into the future and ensure that all due diligence is completed.
- Business structure
Most people who enter into a new business together team up with a personal friend or co-worker. But to ensure these business friendships stay intact, even if someone is a silent partner or there is 70-30 or 80-20 split, you’ll need a lawyer to work on the business structure. A lawyer can help you make sure that you set the business up soundly, whether by partnership, joint venture, company, trust or franchise. If you’re looking to restructure your business, a lawyer can help with partnership dissolutions and corporate restructures.
- Business succession and asset protection
Sharing resources and assets can sound great at the beginning of a partnership but can come at a price. A lawyer will put a plan in place that is fair for all parties involved and make sure your business and personal assets are protected. They can also help decide from the outset the roles and responsibilities each player has in the business succession plan. Things to consider are reporting objectives, indicators to measure results and track performance and how will efforts and results be measured and monetised.
- Disputes and corporate law
A lawyer can offer dispute resolution services and litigation representation in the event that disputes arise for or within your business. A company can get into a wide range of problems and challenges once started, including breaches of contract, building and property disputes, debt recovery, copyright infringement and partnership disputes. A lawyer will also assist with shareholder agreements, advice on corporate governance, and documenting company administrations.
- Taxation advice
While it’s imperative to have an excellent accountant for your business, a lawyer can also be valuable to draft and review mortgages, guarantees, charges and other securities documentation, as well as working with your accountant to identify potential areas of exposure regarding GST, capital gains, stamp duty and land tax.
- Exit strategy
A business prenup will also include a solid exit strategy. The reality is that people decide for different reasons to part ways and move in a different direction. A lawyer can foreshadow various scenarios and have documents in place that outline what happens when one or more of the partners leave and how resources are divided and how clients will be served.
The temptation is significant in today’s market to share talents, equipment, expenses or crucial business relationships. Investing in lawyers to help smooth the transition and help set your business up will pay off in the long run.
The above is not intended as legal advice. You should obtain legal advice in relation to your own specific circumstances.
Article by Tony Ryan