Establishing a business is a challenging process and there are many things to think about when trying to get a business up and running.
Therefore, it is common for business owners to focus on setting up the business in a logistical sense first and then selling and marketing the product or service. However, when establishing a co-owned business, it is an important step to put in place a shareholders’ or unit-holders’ agreement (‘business co-ownership agreement’).
A business co-ownership agreement should contain a clear set of guidelines for operation of the business and the relationship of its co-owners across a range of key matters (see below). By having agreed processes and mechanisms in place for how things are to be done, the agreement can help to provide a smoother and clearer path through various matters that may arise.
This can then allow the co-owners to maintain focus on operating the business and potentially avoid expensive legal costs.
Generally, it is easier and quicker to settle on an agreed regime early in the business journey when everyone is forward focused and wanting to work together. It gets harder to reach agreement if issues in the business or the relationship develop.
However, even if your business has been up and running smoothly, significant change can happen quickly, unexpectedly and for reasons outside your control (or that of your business partner). Therefore, implementing a business co-ownership agreement for an established business can help you better manage difficult situations as they arise.
The following are key matters that are often included in a business co-ownership agreement:
As well as the above, business relationship agreements often cover many other matters but are tailored to reflect the future plans of the business, having regard to the age, financial position, expertise and personalities of the owners. Therefore, it is recommended an experienced commercial lawyer is engaged to prepare the agreement.