By Tim Downing, Partner
Given COVID-19 you would probably think that now would not be the time to start a new businesses. On the contrary, we are seeing many people doing just that. Some were going down that path anyway, but for others it’s a step being taken because their circumstances have presented, or resulted in, the opportunity to do so. And many of these new businesses are being established and run by two or more business partners together.
There is plenty to think about when trying to get your business up and running. When establishing a co-owned business it is an important step to put in place a Shareholders’ or Unitholders’ Agreement to clearly set out how the co-owners want to run their joint business venture and regulate the rights of ownership. You can look at a Shareholders’ or Unitholders’ Agreement as just being a governance document. But in reality it is, and should be, much more than that.
A Shareholders’ or Unitholders’ Agreement is a business relationship agreement that 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 (including decision-making, funding, other money matters, exits, disputes and governance). 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 arise. This can then allow the co-owners to maintain focus on operating the business.
In our experience, it is generally easier and quicker to settle on an agreed regime early on 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. As 2020 has shown us, significant change can happen quickly, unexpectedly and for reasons outside your control (or that of your business partner). Being organised early and having a strong governance structure in place can help you better manage difficult situations, like COVID-19, that may arise.
Of course, funds are generally tight when you’re starting out and putting a Shareholders’ or Unitholders’ Agreement in place is not always high on the priority list. A DIY solution (downloaded via the internet) can be tempting, but all too often these are inadequate or don’t work properly (which often comes to light too late once a dispute or issue has arisen). The Mills Oakley Private Advisory team has a Shareholders’ / Unitholders’ Agreement solution to help start-ups and early stage businesses which provides you with a high quality solution for a low fixed fee. It will get you going on the right foot and can always be revisited and enhanced in the future once the business has grown. Of course, if you need or want a more tailored and bespoke agreement, then we can help with that as well.
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