Going into partnership in business is like a marriage.
It is a collaboration of two or more people that share ownership of the business, as well as its profits & losses. It is a serious commitment of time, money and reputation; therefore, deciding to enter a business partnership should be of good judgement.
If you are looking to bring other people on board in your business, there are certain things to consider before ‘taking the plunge’:
Director & Public Officer Insurance
- This insurance is like Professional Indemnity for Directors. This is important to have, if they are going to come on board as Directors as well.
- This should take into consideration how a voluntary exit (i.e. retirement or circumstantial) takes place, a forced exit (i.e. disagreement, non-performance, bankruptcy) or involuntary exit (i.e. death, significant trauma).
It is important to get a Shareholders Agreement in place, if you are looking at bringing two or more people on board. Part of that would be looking at how you deal with each exit – what are the terms & conditions that surround that. Another part would be the Risk Management of it – if something happens to one of the partners, or if someone must exit for some unknown or unforeseen reason.
Note that whenever you make a business proposal, you must include a clause about agreeing to a Shareholders Agreement and the terms & conditions set out in it. You will need to get a Solicitor to help you make and set in place a Shareholders Agreement.
Voluntary Exit – retirement or circumstantial exit
- Any voluntary exit should be predetermined and managed. This could be an exit where someone retires, or it is just time for them to move on from the business. Shareholders Agreement should cover minimum terms on which a voluntary exit is dealt with.
- Any forced exit might be somewhat more difficult to manage then a voluntary exit. This type of exit can come about due to disagreement, non-performance of a partner or even other things such as criminal conviction and/or bankruptcy. Should this arise, details of what is expected and how this is managed should be covered in your agreement as a minimum, to provide you with the security of knowing how to deal with it.
- Should one of the owners have an accident, there needs to be the appropriate mechanisms in place to protect the interests of the business and shareholders. A Buy/Sell Agreement covers the involuntary exit and is usually covered via some insurance policies, or vendor finance agreement agreed upon in the Shareholders Agreement.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.